If Changing Discount Rates from the Company Cost of Capital

question 32

Multiple Choice

If changing discount rates from the company cost of capital to the project cost of capital changes NPV from negative to positive,then the project should use the:

• A) company cost of capital and be accepted.
• B) company cost of capital and be rejected.
• C) project cost of capital and be accepted.
• D) project cost of capital and be rejected.

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Definitions:

Compounded Monthly

A method of calculating interest where the interest earned is added to the principal each month, and the next month's interest is calculated on this new total.

Interest Rate

The proportion of a total amount of money that is levied for borrowing it, usually stated as an annual rate.

Annual Return

The percentage of gain or loss on an investment over a one-year period, taking into account both capital gains and dividends.

Retirement Fund

Financial resources that have been saved and are used to support a person's retirement.