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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.

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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.

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