Which of the Following Statements Is True

question 32

Multiple Choice

Which of the following statements is true?

• A)There is no necessary connection between a firm's growth rate and the rate of return you should expect to earn by investing in the firm.
• B)Given the same expected cash flows, a firm that has a lower cost of capital will sell for a lower price than a firm that has a higher cost of capital.
• C)It is always better to invest in a high-growth firm since it will offer a higher return on your investment dollars.
• D)Slower growing firms are the better choice for long-term investing since they are "slow but steady" whereas the high-growth firms typically have only one or two good years after
• Which they tend to earn less than the slower-growth firms.

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Definitions:

Linear Relationship

A type of relationship between two variables where the change in one variable is consistently associated with a change in the other variable in a manner that can be depicted with a straight line.

Coefficient Of Correlation

The coefficient of correlation is a statistical measure that calculates the strength and direction of a linear relationship between two variables.

Coefficient Of Determination

A statistic that measures the proportion of the variance in the dependent variable that is predictable from the independent variable(s).

Linear Regression Model

A statistical method for modelling the relationship between a dependent variable and one or more independent variables by fitting a linear equation to observed data.