Which of the following statements are correct?
I.Using the same risk-adjusted discount rate to discount all future cash flows adjusts for the fact that the more distant cash flows are often more risky than cash flows occurring sooner.
II.If you can borrow all of the money you need for a project at 5%,the cost of capital for this project is 5%.
III.The best way to obtain the cost of debt capital for a firm is to use the coupon rates on its bonds.
IV.The cost of capital,or WACC,is not the correct discount rate to use for all projects undertaken by a firm.
A) I and III only
B) II and IV only
C) I and II only
D) I and IV only
E) I, II, and III only
F) None of the above.

Question

Quizplus · Accepted Answer

I. Using the same risk-adjusted discount rate to discount all future cash flows adjusts for the fact that the more distant cash flows are often more risky than cash flows occurring sooner. This statement is incorrect because using the same discount rate for all cash flows does not adjust for the different levels of risk associated with each cash flow.IV. The cost of capital, or WACC, is not the correct discount rate to use for all projects undertaken by a firm. This statement is correct because the WACC is a weighted average of the costs of debt and equity, and it may not be appropriate to use this rate to discount all projects.

Which of the Following Statements Are Correct