If a Firm Uses a Constant WACC to Select Investments

question 77

Multiple Choice

If a firm uses a constant WACC to select investments projects, it will:

• A)always make appropriate decisions.
• B)not accept negative NPV high-risk projects.
• C)not reject positive NPV low-risk projects.
• D)may cause the market price of its debt and equity securities to decline.

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Definitions:

Joint Venture

A collaborative agreement where several participants contribute their resources to fulfill a targeted objective.

Licensing Agreement

A contract in which one company (the licensor) grants permission to another company (the licensee) to use the licensor’s intellectual property in return for payment.

Ethical Decision

The process of choosing among alternatives in a manner consistent with ethical principles.

Forum Selection Clauses

Provisions in a contract that establish the jurisdiction or court in which disputes arising from the contract will be resolved.