When Calculating the NPV,what Discount Rate Should We Use

question 10

Multiple Choice

When calculating the NPV,what discount rate should we use?

• A)A discount rate equal to the investment return that could be earned on nonmarketable securities with similar risk characteristics.
• B)A discount rate equal to the investment return that could be earned on marketable securities with similar risk characteristics.
• C)A discount rate equal to the investment return that could be earned on low-risk marketable securities.
• D)A discount rate equal to the investment return that could be earned on high-risk nonmarketable securities.
• E)None of the above.

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs, indicating the amount available to cover fixed costs and generate profit.

Variable Administrative Expenses

Expenses within the administration sector that fluctuate with the level of business activity, like sales commissions.

Contribution Margin

The amount by which a product's sales price exceeds its variable costs, used to cover fixed costs and generate profit.

Variable Selling Expenses

Costs that fluctuate with the level of sales activity, such as commissions and shipping fees.