When Using a Single Rate, Such as the WACC, to Discount

question 24

True/False

When using a single rate, such as the WACC, to discount cash flows for all projects of a particular company, the discount rate could lead to accepting projects that will actually have a negative NPV.

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Definitions:

Reserves

Reserves refer to funds or other assets that banks or financial institutions hold to meet unexpected demands or regulatory requirements.

Required Reserve Ratio

A regulation set by central banks determining the minimum amount of reserves that banks must hold against deposits, affecting money supply.

Excess Reserves

The reserves that banks hold over and above the legal requirement; these are not loaned out and do not earn interest for the bank.

Required Reserves

The minimum amount of funds that a bank must hold in reserve against deposits, as mandated by the central bank.