Why might it be important to use period-specific discount rates when doing capital budgeting?
What will be an ideal response?
We know that risk free spot interest rates are the appropriate discount rates for cash flows from risk free pure discount bonds. If the term structure of spot interest rates is not flat, that is, if it is upward sloping or downward sloping, using the same discount factor for all the cash flows of a risky project will not be correct. If the term structure is upward sloping, and you use the single long-term rate as the base for your risk adjusted discount rate, you will needlessly penalize the earlier cash flows from the project because short-term spot interest rates are lower than long-term spot interest rates. Conversely, if the term structure is downward sloping, and you use the single long-term rate as the base for your risk adjusted discount rate, you will be incorrectly enhancing the value of the earlier cash flows from the project because the short-term interest rates that should be used to discount near-term cash flows are higher than the long-term rates that should be used to discount longer-term cash flows.
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a. path-goal b. Hersey/Blanchard c. Vroom/Jago d. none of these
___________ are the specific steps the team must perform to achieve its goals.
a. Systems b. Interdependence c. Tasks d. Resources
To perfect a security interest in a negotiable instrument, Second State Savings and Loan should:
a. file a financing statement. b. take possession of the instrument. c. do nothing. Perfection is automatic. d. secure a court order.
Which column (i) and row (n) would you use from a present value or future value table for 8% interest compounded quarterly for 6 years?
A. (i) = 2%, (n) = 8 B. (i) = 8%, (n) = 6 C. (i) = 4%, (n) = 24 D. (i) = 4%, (n) = 12 E. (i) = 2%, (n) = 24