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LOS i: Explain the appropriateness of using a particular rate of return as a discount rate, given a description of the cash flow to be discounted and other relevant facts.
Q1. To determine which rate of return to use as a discount rate, an analyst should consider the:
A) nature of the cash flows being discounted.
B) length of the holding period.
C) likely return of the stock market over the next year.
Q2. Cash flows to the firm should be discounted at the:
A) market’s estimated rate of return.
B) firm’s weighted average cost of capital.
C) rate determined by the capital asset pricing model.
Q3. Joe Bates, CFA, has prepared a schedule of real cash flows for his company’s plant expansion. Bates generally uses the weighted average cost of capital to discount such cash flows, but in order to accurately determine the present value of those real cash flows, he should adjust the discount rate to reflect:
A) the company’s cost of both debt and equity.
B) expected changes in the market growth rate.
C) expected inflation. | 
发表于 2009-3-5 10:08
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