The Appropriate Discount Rate That Analysts Use in Computing the Present

question 20

Multiple Choice

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of an increase reflecting the inflation expected to occur over the life of the project.Thus,

• A)the higher the expected inflation,the higher should be the discount rate.
• B)the higher the expected inflation,the lower should be the discount rate.
• C)the lower the expected inflation,the higher should be the discount rate.
• D)all of the above.

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Definitions:

Total Asset Turnover

A financial ratio that measures a company's ability to generate sales from its assets by comparing net sales with average total assets.

Profit Margin

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold, showing the profitability of a company.

Capital Intensity Ratio

A measure of how much capital is used in production compared to other factors like labor; high ratios suggest a reliance on physical assets and machinery.

Capacity

refers to the maximum level of output that a company can sustain to produce goods or services under normal working conditions.