Your firm is considering the purchase of a company called Frost. What rate of return should be used to compute the NPV of the proposed purchase?
The rate of interest charged by a bank for a loan similar in size to the cost of the purchase
A discount rate equal to Frosts net profit percentage
The discount rate applicable to other investments with similar risks
A discount rate that makes the NPV of the proposed purchase positive
A discount rate equal to Frosts current return on equity
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