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:

Capital

Assets such as funds, equipment, and real estate used in business operations that contribute to the production of goods and services.

Labor

The human effort, either physical or mental, that is used in the production of goods and services.

MRP

Marginal Revenue Product, the additional revenue generated by employing one more unit of a resource, such as labor or capital.

Capital

Financial assets or the financial value of assets, such as funds held in deposit accounts, as well as the physical factors of production including machinery, buildings, and land.