Say That Janie Is Exhibiting the Endowment Effect as She

question 60

Multiple Choice

Say that Janie is exhibiting the endowment effect as she makes a decision. She is:

• A) deciding on the basis of sunk costs.
• B) valuing what she already has more because she owns it.
• C) consuming on the basis of endorsements by celebrities.
• D) buying something she can't really afford right now because she expects to have savings in the future.

Explain the importance of flotation costs and their impact on capital component costs and WACC.

Describe the adjustements made to dividend costs to account for flotation expenses.

Understand the fundamental concepts of the Capital Asset Pricing Model (CAPM) and its role in calculating a firm's cost of equity.

Recognize the importance of using an appropriate discount rate, specifically the weighted average cost of capital (WACC), in evaluating investment projects, including adjustments for project risk.