2016年美国CPA练习题精选：Business 27

Which of the following rates is most commonly compared to the internal rate of return to evaluate whether to make an investment?

a. Prime rate of interest.

b. Long-term rate on U.S. Treasury bonds.

c. Short-term rate on U.S. Treasury bonds.

d. Weighted-average cost of capital.

Explanation

Choice "d" is correct. The weighted-average cost of capital is frequently used as the hurdle rate within capital budgeting techniques. Investments that provide a return that exceeds the weighted-average cost of capital should continuously add to the value of the firm.

Choice "c" is incorrect. The short-term rate on U.S. Treasury bonds represents the risk-free rate of return and would not be appropriate for use as a hurdle rate, in most instances.

Choice "a" is incorrect. The prime rate of interest represents the rate offered by banks to their most credit worthy debtors. The prime rate of return would not necessarily consider the risk-specific return required for a particular company's IRR and would not be appropriate as a hurdle rate.

Choice "b" is incorrect. The long-term rate on U.S. Treasury bonds represents a risk-free rate of return and would not necessarily consider the risk-specific return required for a particular company's IRR and would not be appropriate as a hurdle rate.