A Typical U

question 19

Multiple Choice

a typical U.S.company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely

• A)become riskier over time, but its intrinsic value will be maximized.
• B)become less risky over time, and this will maximize its intrinsic value.
• C)accept too many low-risk projects and too few high-risk projects.
• D)become more risky and also have an increasing WACC.Its intrinsic value will not be maximized.
• E)continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital.

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Definitions:

Situational Analysis

An assessment of an organization's current situation, identifying strengths, weaknesses, opportunities, and threats to aid in strategic planning.

Diversification Analysis

The process of assessing the potential benefits and risks of adding new varieties of products, services, or market segments to a business's portfolio to reduce risks.

Product Development

is the complete process of bringing a new product or service to market, from idea generation and design to prototype testing and eventual launch.

Market Development

The strategy of entering new markets or segments to expand the customer base for existing products or services.