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Option Used For Calculating Opportunity Cost Of Capital

Question

1. Of the following, which is most likely to be used to calculate the opportunity cost of capital on an investment?

A. The best available expected return offered in any investment available in the market.
B. The interest rate on 90 day bank bills.
C. The interest rate of any investments’ alternatives that are available
D. The best available expected return offered in the market on an investment of comparable risk and term to the cash flow being discounted.

2. Which of the following statements is False?

A. The actual return kept by an investor will depend on how the interest is taxed.
B. The equivalent after-tax interest rate is r(1- T)
C. The highest interest rate, for a given horizon, is the rate paid on Australian government securities with a similar term.
D. It is important to use a discount rate that matches both the term and the risk of the cash flows.

Summary

These short questions belong to Finance. The 1st question is about the option used for calculating opportunity cost of capital on an investment. The 2nd question is about finding a false statement.

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Comments

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