If You Use Futures Prices to Estimate the Cash Flows

question 67

Multiple Choice

If you use futures prices to estimate the cash flows of a project, which discount rate should you use?
I.the cost of capital for the firm;
II.the cost of capital for the project;
III.the risk-free rate

• A)I only
• B)I and II only
• C)III only
• D)II only

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Definitions:

Defined Benefit Pension Plan

A type of pension plan where an employer commits to pay a specified pension amount to the retiree, based on factors like salary history and duration of employment.

Pension Expense

The company's cost in a specific period for providing pension benefits to employees during that period.

Funding Agency

An organization that provides financial support for various projects or enterprises.

Unrecognized Prior Service Cost

Costs related to pension plan benefits that have been earned by employees in prior periods but have not yet been recognized in financial statements.