Using the Security Market Line Concept in Capital Budgeting, Which

question 68

Multiple Choice

Using the Security Market Line concept in capital budgeting, which of the following is correct?

• A)If the expected rate of return on a given capital project lies above the SML, the project should be accepted even if its beta is above the beta of the firm's average project.
• B)If a project's return lies below the SML, it should be rejected if it has a beta greater than the firm's existing beta but accepted if its beta is below the firm's beta.
• C)If two mutually exclusive projects' expected returns are both above the SML, the project with the lower risk should be accepted.
• D)If a project's expected rate of return is greater than the expected rate of return on an average project, it should be accepted.

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Definitions:

Value Chain

The specific sequence of activities that creates products and services with value for customers.

Specific Sequence

A particular order or arrangement in which related actions, events, or elements follow each other.

Goods And Services

The physical products (goods) and intangible offerings (services) that fulfill the needs or wants of consumers.

Just-in-time Scheduling

A strategy used in manufacturing and logistics to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs.