True, False, or Uncertain: "If a Firm Accepts Only Projects

question 49

True/False

True, False, or Uncertain: "If a firm accepts only projects that are expected to return its
weighted average cost of capital or higher, the firm will become riskier over time."
Explain.

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Definitions:

Net Present Value

The disparity between cash inflows' present value and cash outflows' present value through a certain time frame, utilized to determine an investment's profitability.

Fixed Costs

Costs that do not change with the level of output or sales, such as rent, salaries, and insurance premiums.

Cash Break-even Point

The point at which a business's cash inflows equal its cash outflows, excluding financing.

Degree of Operating Leverage

A ratio that quantifies the sensitivity of a company's operating income to its sales, demonstrating the impact of fixed and variable costs on profitability.