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3.     What factors should be taken into consideration when selecting a discounting factor to calculate the...

3.     What factors should be taken into consideration when selecting a discounting factor to calculate the net present value of a capital purchase?

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Answer #1

Discout factor is based on opportunity cost of capital which considers inflation, risk, size, time

Opportunity cost of capital- rate of return company could earn on an investment of similar size, risk and maturity. It’s opportunity company would be giving up when it invests in this particular project.

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