Which of the Following Statements Is True

question 16

Multiple Choice

Which of the following statements is true?

• A)A firm that uses a single cost of capital as a required rate of return for all its projects will lose out because it may reject profitable projects that have a risk level that is greater than
• The average-risk project of the firm.
• B)It is better for a firm to use a single cost of capital as a required rate of return for all projects because it will then maintain a constant risk level for the firm.
• C)A firm that uses a single cost of capital as a required rate of return for all its projects may end up accepting unprofitable projects that have a risk level that is below average for the
• Firm.
• D)A firm that uses a single cost of capital as a required rate of return for all its projects may end up rejecting profitable projects that have a risk level that is below average for the firm.

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Definitions:

Noncash Assets

Assets that are not in the form of cash but can be converted into cash, such as investments, real estate, and inventory.

Book Value

The net value of an asset, calculated as the asset’s original cost minus depreciation, amortization, or impairment costs.

Fair Value

An estimate of the price at which an asset or liability could be bought or sold in a current transaction between willing parties.

Cash

Currency or coins that are used as a medium of exchange for transactions; also, readily available liquidity or assets.