A project's discount rate

Question

Quizplus · Accepted Answer

The discount rate is the rate of return required by an investor to invest in a particular project. Therefore, the discount rate must be high enough to compensate investors for the project's risk. Option A is incorrect because it assumes the cost of funds for the firm's current list of projects is lower than the discount rate which may not always be the case. Option C is incorrect because it assumes the cost of funds for the firm's current list of projects is higher than the discount rate which again may not always be true. Option D is incorrect as there is a correct answer.

A Project's Discount Rate