If a Firm Uses the Same Company Cost of Capital

question 27

Multiple Choice

If a firm uses the same company cost of capital for evaluating all projects, which of the following is likely?
I. Rejecting good low risk projects
II. Accepting poor high risk projects
III. Correctly accept projects with average risk

• A) I only
• B) I and II only
• C) I, II, and III
• D) II only

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Definitions:

Fraud

The tort of intentionally or recklessly misleading another person or making statements without belief in their truth.

Independent Agent

An individual or entity contracted to perform tasks or services for another entity while retaining control over their work methods.

Breach

The violation or non-fulfilment of a legal obligation, contract, or duty.

Fiduciary Duty

The responsibility to act in the best interests of another party, such as in financial matters or care, characterized by trust, reliance, and a duty of care.