It Is Incorrect to Use the fiRm's Discount Rate When

question 37

Multiple Choice

It is incorrect to use the firm's discount rate when valuing a new project because:

• A)you must adjust the discount rate for the project based on the firm's risk.
• B)you must adjust the discount rate for the project based on the project risk.
• C)you must exercise risk aversion and use the market rate.
• D)an average rate across prior projects is acceptable because estimates contain errors.
• E)one must have the actual data to determine any differences in the calculations.

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Definitions:

Western Electric

A historical American electrical engineering and manufacturing company that played a significant role in the development and growth of the telecommunications industry.

Human Relations Theory

A concept in management emphasizing the importance of social processes in the workplace, including communication and employee needs, for enhancing productivity.

Wagner Act

A foundational piece of U.S. labor law enacted in 1935 that established the rights of workers to form unions and engage in collective bargaining.

Theory Y

A management notion that assumes employees are inherently motivated and enjoy their job duties.