The Expected Rate of Return for 3COM Is 18 Percent

question 117

Multiple Choice

The expected rate of return for 3COM is 18 percent, with a standard deviation of 10.98 percent. The expected rate of return for Just the Fax is 26 percent with a standard deviation of 15.86%. Which firm would be considered the riskier from a total risk perspective?

• A)3COM
• B)Just the Fax
• C)Neither, both have the same risk in a relative sense.
• D)Cannot be determined

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Definitions:

Divisional Segment Margin

The profit or loss generated by a specific division or segment of a business, highlighting its financial performance independently.

Net Operating Income

Earnings from a firm's principal operations, not including interest and tax deductions.

Common Fixed Expenses

Overhead costs that are not directly tied to production or sales volume, including rent, salaries, and insurance, shared across departments or product lines.

Period Cost

Costs that are expensed in the period in which they are incurred, typically including selling, administrative, and other non-production costs.