The Appropriate Discount Rate That Analysts Use in Computing the Present

question 18

Multiple Choice

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of a risk factor reflecting the riskiness of the project.Thus,

• A)the greater a projects risk,the higher the discount rate.
• B)the Federal government has the lowest probability of default,so government bodies usually have the lowest risk premiums.
• C)a different discount rate would be used to invest a company's funds in a high-risk research and development project rather than low-risk bonds.
• D)all of the above.

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