Suppose a Firm Uses a Constant WACC in Determining the Value

question 350

Multiple Choice

Suppose a firm uses a constant WACC in determining the value of capital budgeting projects rather than using the security market line. The firm will tend to _____________________.

• A) Accept profitable, low risk projects and reject unprofitable, high risk projects.
• B) Accept profitable, low risk projects and accept unprofitable, high risk projects.
• C) Reject unprofitable, high risk projects.
• D) Become more risky over time.
• E) Accept profitable, low risk projects.

---

Definitions:

Psychosexual Development

Psychosexual development is a Freudian concept referring to a series of developmental stages from childhood to adulthood, where pleasure shifts from one body area to another, significantly shaping personality.

Psychosexual Stages

Freudian theory stages through which a child's personality develops, including the oral, anal, phallic, latency, and genital stages.

Anal Stage

The second stage of psychosexual development, when gratification is attained through anal activities.

Melancholic

Relating to or suffering from melancholy, a profound state of sadness or depression.