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:

Direct Labor

The price of paying staff who are directly participating in the manufacturing of goods or provision of services.

Direct Materials

Basic substances used in production that can be directly integrated and precisely identified in the final product.

Factory Overhead

Indirect costs associated with manufacturing, including expenses such as rent, utilities, and maintenance that are not directly tied to the production of goods.

Factory Overhead

Expenses incurred in manufacturing excluding the costs of direct labor and materials.