The Net Present Value Method of Capital Budgeting Assumes That

question 126

Multiple Choice

The net present value method of capital budgeting assumes that cash flows are reinvested at what rate?

• A) The internal rate of return on the project.
• B) The rate of return on the company's debt.
• C) The discount rate used in the analysis.
• D) A zero rate of return.

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Definitions:

Time To Maturity

The remaining life of a debt instrument, at the end of which the principal is usually repaid.

Coupon Rate

The annual interest rate paid by a bond relative to its face value, expressed as a percentage.

Put Provision

An option clause in a bond or preferred stock allowing the holder to sell back the security to the issuer at a predetermined price before maturity.

Bond Indenture

A legal contract between bond issuers and bondholders, specifying the terms of the bond, including its maturity date, coupon rate, and other conditions.