A firm's discount rate is typically based on

Question

Quizplus · Accepted Answer

A firm's discount rate is based on its cost of capital, which is the weighted average of the cost of debt and equity. This takes into account the risk associated with the firm's operations and the market conditions. The interest rates related to the firm's bonds or the corporate Aa bond yield may be a factor in determining the cost of debt, but the overall cost of capital needs to consider all sources of funding. The project's internal rate of return may also be used in determining the feasibility of the project, but it does not necessarily reflect the firm's cost of capital.

A Firm's Discount Rate Is Typically Based on