The discount rate used to calculate the NPV should be the interest rate that the company could borrow at to finance the proposed capital project.

Question

Quizplus · Accepted Answer

The discount rate is the required rate of return on the project and is a type of hurdle rate that management has set as a goal. It can be derived from the company's cost of capital - which would include borrowings but also the cost of equity. It is also a function of the opportunity cost of capital.

The Discount Rate Used to Calculate the NPV Should Be