Which of the Following Statements Is Correct

question 35

Multiple Choice

Which of the following statements is correct?

• A)Sensitivity analysis is used frequently in capital budgeting analysis.Its big advantage is that because it shows correlations between changes in input variables and NPV, it accounts for within-firm risk.
• B)Other things held constant, the lower the correlation between a project's returns and returns on the market, the less risky the project.
• C)In judging the relative stand-along risks of a set of projects, the projects' standard deviations of NPV are a better measure than their coefficients of variation.
• D)One can run a regression of returns on a project versus returns on the firm's other assets, get a beta coefficient, and use this beta as a measure of the project's market risk.
• E)One can run a regression of returns on a project versus returns on the stock market, get a beta coefficient, and use this beta as a measure of the project's within-firm risk.

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Definitions:

Price Ceilings

Government-imposed limits on how high a price can be charged for a product or service.

Market Equilibrium

The condition in which market supply equals market demand, such that prices become stable.

Increased Demand

Describes a situation where a larger number of consumers are willing and able to purchase a good or service at a given price, often leading to higher prices or a market shortage if supply does not increase correspondingly.

Price Ceiling

A legally established maximum price that can be charged for a good or service, preventing prices from reaching equilibrium levels.