Asked by Sarah Gascon on May 20, 2024
Verified
The discount rate used in net present value analysis should normally match or exceed the company's minimum required rate of return.
Discount Rate
The discount rate applied in DCF analysis to calculate the current value of future cash flows.
Net Present Value
The discrepancy between the current worth of incoming cash and the current worth of outgoing cash over a certain timeframe, utilized in the process of capital budgeting to evaluate an investment's profitability.
Required Rate Of Return
The minimum expected return an investor demands for an investment, determining the value of potential investments.
- Grasp the significance of aligning the discount rate with the company's minimum required rate of return in net present value analysis.
Verified Answer
MG
Mallory GoodwinMay 26, 2024
Final Answer :
True
Explanation :
The discount rate used in net present value analysis should be equal to or greater than the minimum required rate of return to account for the time value of money and opportunity cost of investing in the project.
Learning Objectives
- Grasp the significance of aligning the discount rate with the company's minimum required rate of return in net present value analysis.