Choosing a project's discount rate
Not what you're looking for?
For a company which earns 10 Percent on its call account deposits,borrows longterm at 12 percent and its main investments are in the form of call account deposits,what will be the best DISCOUNT RATE to use in project evaluation NPV,as an alternative to using WACC? How can such a rate be justified?
Purchase this Solution
Solution Summary
The solution explains how to arrive at the correct discount rate to use for a project evaluation in calculating the NPV
Solution Preview
The rate to use would be 12%.
In capital budgeting, we use the a discount rate to take care of the financing costs which are not included in the cash flows. When a project is being done, it needs capital and the capital needs to be serviced i.e., investors need to be compensated by repaying the borrowing as also giving a return on the invested capital. This rate which is the required return by the investors is used as the ...
Purchase this Solution
Free BrainMass Quizzes
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.