Which of the Following Is Not True Regarding the Appropriate

question 9

Multiple Choice

Which of the following is not true regarding the appropriate discount rate to be used in conjunction with discounted cash flow (DCF) decision models?

• A) For projects of "above average" risk, the appropriate discount rate is the weighted-average cost of capital (WACC).
• B) It includes an estimate of the after-tax cost of debt.
• C) It can differ across investment projects, according to perceived risk of each project.
• D) It is also sometimes referred to as the "hurdle rate" for capital budgeting purposes.
• E) It can properly be viewed as the "minimum required rate of return" for a proposed investment.

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Definitions:

Carrying Amount

The book value of an asset or liability on a company's balance sheet, reflecting its original cost adjusted for any depreciation, amortization, or impairment costs.

Gain

The financial profit obtained from a transaction or investment, exceeding the initial cost.

Loss

Occurs when a company's expenses exceed its revenues, resulting in a negative profit.

Discount on Bonds Payable

The difference between the face value of bonds and their selling price, when the bonds are sold for less than their face value.