The discount rate that should be used in Net Present Value assessments is:

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) of the business is the most appropriate discount rate to use in Net Present Value assessments as it includes both the cost of debt and equity financing. It reflects the opportunity cost of investing in a particular project compared to other investment options available to the business. The government bond rate may be used if the project is risk-free, but most projects carry some level of risk. The specific cost of capital associated with funding a particular project is too narrow as it only considers the funding costs for that project and does not reflect the overall cost of capital for the business. The expected rate of return required by ordinary shareholders may be used to determine whether a project meets the required return threshold, but it is not a comprehensive measure of the cost of capital for the business.

The Discount Rate That Should Be Used in Net Present