Question

Q10 When calculating the NPV, what discount rate should we use? Group of answer choices A...

Q10

When calculating the NPV, what discount rate should we use?

Group of answer choices

A discount rate equal to the return that could be earned on nonmarketable securities with similar risk.

A discount rate equal to the return that could be earned on marketable securities elsewhere with higher risk.

A discount rate equal to the investment return that could be earned on low-risk marketable securities.

A discount rate equal to the investment return that could be earned on high-risk nonmarketable securities.

None of the above.

Homework Answers

Answer #1

Answer to the Question is Option "A discount rate equal to the return that could be earned on nonmarketable securities with similar risk"

Explanation:

While selecting the Discount Rate, we would compare this project with an alternative with a similar risk, The return that project will return in case the capital is invested in that alternative. For Example, If we are thinking to Invest in Project X and the alternative to this Project X is Project Y that could earn 10.00% return on the investment, then we would use 10.00% as our discount rate to calculate the NPV of Project X to compare the return between the two projects and invest in the best project.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Shareholders would want management to invest in a negative NPV project only when Group of answer...
Shareholders would want management to invest in a negative NPV project only when Group of answer choices A) The project is low risk and the company has substantial debt in its capital structure. B) The project is low risk and the company has no debt in its capital structure. C) The project is high risk and the company has substantial debt in its capital structure. D) The project is high risk and the company has no debt in its capital...
To say that investors are risk-averse means that Group of answer choices they hope for high...
To say that investors are risk-averse means that Group of answer choices they hope for high returns from high-risk investments, but generally expect low returns. they will invest only in safe investments such as insured savings accounts and government securities. they require higher potential returns as compensation for accepting higher risk. when given a choice between risky investments and safe ones, they will buy only safe investments.
The NPV of a project decreases with discount rate r. When r=10%, NPV=$10 million; when r=11%,...
The NPV of a project decreases with discount rate r. When r=10%, NPV=$10 million; when r=11%, NPV= -$5 million. The IRR of this project must be ________. Group of answer choices a. Above 11%. b. Below 10%. c. Not enough information. d. Between 10% and 11%.
1)what are the correct statements. Group of answer choice: a)If a security is underpriced, then the...
1)what are the correct statements. Group of answer choice: a)If a security is underpriced, then the expected holding period return is above the market capitalization rate. b)The value of the equity equals the present value of all future payouts (dividends plus repurchases). c)The value of a share equals the present value of all future dividends per share. d)If a firm reinvests its earnings at an ROE equal to the market capitalization rate, then its earnings-price (E/P) ratio is equal to...
According to the coupon effect, which of the following if true? Group of answer choices All...
According to the coupon effect, which of the following if true? Group of answer choices All else equals, high coupon bond experiences larger change in price when rate changes All else equals, high coupon bond experiences smaller change in price when rate changes None of the above. All else equals, low coupon bond experiences smaller change in price when rate changes
Briefly answer the questions that follow. You are considering two mutually exclusive projects. The NPV for...
Briefly answer the questions that follow. You are considering two mutually exclusive projects. The NPV for project one is positive and higher than the NPV for project two, while the IRR for project two is higher than that for project one. Which project should the firm accept and why? When does a project result in only one IRR? If a project has more than one IRR, how can we use Excel to find the multiple IRRs? A diversified, low-risk firm...
When a capital budgeting project has an NPV of zero, what does this mean? The project’s...
When a capital budgeting project has an NPV of zero, what does this mean? The project’s IRR will be less than the required hurdle rate for the project The firm’s stockholders will earn a positive return, but it will be less than their required return, given the risk of the investment The firm’s stockholders will earn a negative return The firm’s security holders will earn their required rate of return, given the risk of the investment none of the above
Which of the following statements is not correct? Group of answer choices The binomial option pricing...
Which of the following statements is not correct? Group of answer choices The binomial option pricing model when taken to the limit becomes the Black-Scholes option pricing model. The Black-Scholes model uses a continuous time discount factor. The binomial option pricing model use a ratio of the range values as the hedge ratio. The Black-Scholes model is related to a heat transfer equation and Brownian molecular motion. The Black Scholes model only estimates the intrinsic value of the call option....
A project has an NPV of £12,632 when a discount rate of 12% is used and...
A project has an NPV of £12,632 when a discount rate of 12% is used and the same project has an NPV of (£6,935) when a discount rate of 24% is used. The approximate internal rate of return of the project is: Select one: a. 18.5% b. 15.16% c. 20.5% d. 19.75% An investment project costs $10,500 and will generate $4,000 in annual cash flows for five years. What is the exact internal rate of return (IRR)? Select one: a....
11. The discount rate that makes the net present value of an investment exactly equal to...
11. The discount rate that makes the net present value of an investment exactly equal to zero is the: A) Payback period. B) Internal rate of return. C) Average accounting return. D) Profitability index. E) Discounted payback period. 12. The internal rate of return (IRR) rule can be best stated as: A) An investment is acceptable if its IRR is exactly equal to its net present value (NPV). B) An investment is acceptable if its IRR is exactly equal to...