Which of the Following Statements Is CORRECT? Assume That the Firm

question 53

Multiple Choice

Which of the following statements is CORRECT? Assume that the firm is a publicly-owned corporation and is seeking to maximize shareholder wealth.

• A)If a firm has a beta that is less than 1.0, say 0.9, this would suggest that the expected returns on its assets are negatively correlated with the returns on most other firms' assets.
• B)If a firm's managers want to maximize the value of their firm's stock, they should, in theory, concentrate on project risk as measured by the standard deviation of the project's expected future cash flows.
• C)If a firm evaluates all projects using the same cost of capital, and the CAPM is used to help determine that cost, then its risk as measured by beta will probably decline over time.
• D)Projects with above-average risk typically have higher than average expected returns.Therefore, to maximize a firm's intrinsic value, its managers should favor high-beta projects over those with lower betas.
• E)Project A has a standard deviation of expected returns of 20%, while Project B's standard deviation is only 10%.A's returns are negatively correlated with both the firm's other assets and the returns on most stocks in the economy, while B's returns are positively correlated.Therefore, Project A is less risky to a firm and should be evaluated with a lower cost of capital.

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Definitions:

Frame Alignment

A process in social movement theory that involves aligning individual interests, values, and beliefs with those of a broader social movement.

Resource Mobilization

The process of gathering resources (financial, human, informational, etc.) needed to support and accomplish goals, particularly in social movements.

Political Opportunity Theories

Theories in social movements suggesting that the success or failure of social movements is heavily influenced by the broader political context, including the accessibility of political institutions and the stability of elite alignments.

Resource Mobilization

The process of gathering and deploying financial, human, and material resources for a particular purpose, often associated with social movements or projects.