A firm's discount rate is typically based on

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A firm's discount rate is typically based on its cost of capital, which takes into account the weighted average cost of debt and equity financing. The cost of debt is usually based on the interest rates related to the firm's bonds, but it is just one component of the cost of capital calculation. The internal rate of return (choice B) is a tool used to evaluate the profitability of a project, but it is not the same as the discount rate. The corporate Aa bond yield (choice D) may be used as a proxy for the cost of debt, but it is not the only factor considered in determining the cost of capital.

A Firm's Discount Rate Is Typically Based on