The appropriate discount rate for a firm is:
A)the bank rate.
B)its opportunity cost of capital.
C)the prime rate.
D)its depreciation rate.

Question

Quizplus · Accepted Answer

The appropriate discount rate for a firm is its opportunity cost of capital, which represents the return an investor could earn in the best available alternative investment of equal risk. It takes into account the cost of financing the investment with debt or equity, as well as the risk associated with the investment. The bank rate, prime rate, and depreciation rate are not appropriate discount rates for a firm as they do not account for the specific risk and opportunity cost of capital of the investment.

The Appropriate Discount Rate for a Firm Is