Using the Security Market Line Concept in Capital Budgeting, Which

question 9

Multiple Choice

Using the Security Market Line concept in capital budgeting, which of the following statements 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.
• E) None of the statements is correct.

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Definitions:

Directly Affected

Individuals or entities that experience the immediate consequences or benefits of an action or decision.

Economic Responsibility

The obligation of an organization to act in ways that serve both its own interests and the interests of its stakeholders, ensuring its actions maintain or enhance the economic status and conditions of its stakeholders.

Social Responsibility

The obligation of organizations or individuals to act in ways that benefit society at large, beyond their own interests or profits.

Customer Responsibility

The obligation of customers to act in a manner that respects the terms of service, policies, and ethical considerations of transactions with businesses.