The Cost of Capital Used to Compute the Present Value

question 23

Multiple Choice

The cost of capital used to compute the present value of a project should be the rate that can be earned on:

• A)the overall market portfolio.
• B)the sponsoring firm's return on assets.
• C)a financial asset of comparable risk.
• D)a riskless asset with a similar life span.
• E)the sponsoring firm's return on equity.

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Definitions:

Representative Capacity

This refers to acting on behalf of another person or entity in a legal or official capacity, such as an attorney representing a client.

Authority

The authority to command, decide, and ensure compliance.

Custom

A traditional and widely accepted way of behaving or doing something specific to a particular society, place, or time.

Apparent Authority

The appearance or assumption of authority given to an agent, employee, or representative by the actions or statements of the principal, leading third parties to believe the agent has such authority.