When Incorporating Risk into Capital Budgeting Through the Interest Rate

question 9

Multiple Choice

When incorporating risk into capital budgeting through the interest rate used in NPV or IRR calculations, the rates used are called:

• A)inflation adjusted rates.
• B)market risk premium.
• C)risk-free rates.
• D)risk-adjusted rates.

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Definitions:

Current Ratio

A measure used to determine a company's potential to fulfill obligations due within one year by calculating the ratio of its current assets to its current liabilities.

Indicator Of Liquidity

Measures that indicate how easily a company can convert its assets into cash to cover short-term obligations.

Total Obligations

The sum of a borrower's current and long-term financial responsibilities.

Past Transactions

Completed financial activities or events that have occurred in the past and have been recorded in the accounting records.