Which of the following is the appropriate discount rate to be used when calculating NPV in the certainty equivalent approach?
A)Cost of capital
B)Risk-free rate
C)Cost of equity
D)Market risk premium

Question

Quizplus · Accepted Answer

The appropriate discount rate to be used when calculating NPV in the certainty equivalent approach is the risk-free rate. This is because the certainty equivalent approach assumes that the cash flows are risk-free and the risk premium is already included in the cash flows. Therefore, the risk-free rate is used as the discount rate to reflect the time value of money.

Which of the Following Is the Appropriate Discount Rate to Be