If a Typical U

question 86

Multiple Choice

If 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:

Social Loafing

The tendency for individuals to exert less effort on a task when working in a group than when working alone.

Social Psychology

The scientific study of how individuals think, feel, and behave in social contexts.

Attribution

The process by which individuals explain the causes of behavior and events, often attributed to internal or external factors.

Internal Attribution

The inference that an event or a person's behavior is due to personal factors such as traits, abilities, or feelings.