Kate Is the CFO of a Major Firm and Has

question 60

Multiple Choice

Kate is the CFO of a major firm and has the job of assigning discount rates to each project that is under consideration.Kate's method of doing this is to assign an incrementally higher rate as the risk level of the project increases over that of the current firm.Likewise,she assigns lower rates as the risk level declines.Which one of the following approaches is Kate using to assign the discount rates?

• A)Pure play approach
• B)Divisional rating
• C)Subjective approach
• D)Straight WACC approach
• E)Equity rating

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Definitions:

Returns

Returns refer to the profit or loss generated on an investment over a specified period of time.

Cost Of Debt

The effective rate that a company pays on its current debt, which can include bonds, loans, and other forms of debt; it's a crucial component in the calculation of the company’s cost of capital.

Debt Ratio

A financial ratio that measures the extent of a company’s leverage, calculated by dividing total liabilities by total assets.

Total Debt

The sum of all liabilities, both short and long term, that a company owes.