The MacMillen Company Has Equal Amounts of Low-Risk,average-Risk,and High-Risk Projects

question 37

Multiple Choice

The MacMillen Company has equal amounts of low-risk,average-risk,and high-risk projects.The firm's overall WACC is 12%.The CFO believes that this is the correct WACC for the company's average-risk projects,but that a lower rate should be used for lower-risk projects and a higher rate for higher-risk projects.The CEO disagrees,on the grounds that even though projects have different risks,the WACC used to evaluate each project should be the same because the company obtains capital for all projects from the same sources.If the CEO's position is accepted,what is likely to happen over time?

• A) The company will take on too many high-risk projects and reject too many low-risk projects.
• B) The company will take on too many low-risk projects and reject too many high-risk projects.
• C) Things will generally even out over time,and,therefore,the firm's risk should remain constant over time.
• D) The company's overall WACC should decrease over time because its stock price should be increasing.
• E) The CEO's recommendation would maximize the firm's intrinsic value.

Recognize the impact of globalization on organizations.

Describe organizations from an organizational behavior perspective.

Comprehend the importance of employees in maintaining organizational memory.

Understand the basic conceptual anchors of organizational behavior.

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Definitions:

Hypokalemia

A medical condition characterized by low levels of potassium in the bloodstream, which can affect heart and muscle function.

Electrocardiogram

Is a medical test that measures the electrical activity of the heart to assess heart health and diagnose various heart conditions.

Peripheral Pulses

The palpable beats of blood that can be felt at various points on the body far from the heart, used to assess circulatory health.

Respiratory Acidosis

A medical condition characterized by a buildup of carbon dioxide in the bloodstream, leading to a decrease in blood pH.