The Subjective Approach to Project Analysis

question 46

Multiple Choice

The subjective approach to project analysis:

• A) is used only when a firm has an all-equity capital structure.
• B) uses the WACC of Firm X as the basis for the discount rate for a project under consideration by Firm Y.
• C) assigns discount rates to projects based on the discretion of the senior managers of a firm.
• D) allows managers to randomly adjust the discount rate assigned to a project once the project's standard deviation has been determined.
• E) applies a lower discount rate to projects that are financed totally with equity as compared to those that are partially financed with debt.

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Definitions:

Financial Data

Quantitative information about an entity's financial performance, including balance sheets, income statements, and cash flow statements.

Current Ratio

A financial metric that evaluates a corporation's capacity to meet its obligations due within a year by comparing its current assets to its current liabilities.

Financial Data

Information related to the financial activities of an entity, including income statements, balance sheets, cash flow statements, and more.

Dividend Payout Ratio

A financial ratio that shows the percentage of a company's earnings distributed to shareholders as dividends.