The Use of WACC to Select Investments Is Theoretically Acceptable

question 62

Multiple Choice

The use of WACC to select investments is theoretically acceptable when:

• A) the correlation of all new projects are equal.
• B) the NPV is positive when discounted by the WACC.
• C) the systematic risk of the projects are equal to the systematic risk of the firm.
• D) the firm is well diversified and the unsystematic risk is negligible.

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Definitions:

Price Elastic

Describes a situation where the demand for a product changes significantly in response to a change in the product's price.

Demand

The quantity of a product or service that consumers are willing and able to purchase at various price levels, at a given point in time.

Price Elastic

A term referring to the responsiveness of the demand or supply of a good or service to changes in its price.

Harvest

The process or period of gathering in crops.