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WineCellars Inc

question 57

Multiple Choice

WineCellars Inc.currently has a weighted average cost of capital of 12%.WineCellars has been growing rapidly over the past several years,selling common stock in each year to finance its growth.However,due to difficult economic times this year,WineCellars decides to cut its dividend and increase its retained earnings so that the common equity portion of its capital structure will include only retained earnings and no new common stock will be sold.WineCellars' weighted average cost of capital this year should be

Identify the appropriate discount rate for different projects based on their risk profiles.

Explain the concept of decision trees in analyzing project outcomes.

Understand how market risk and project specific risk influence the cost of capital.

Describe the impact of ignoring risk in capital budgeting decisions.

Definitions:

Reinforcing Events

Situations or occurrences that strengthen the likelihood of a behavior being repeated.

Incremental Validity

Incremental validity refers to the additional usefulness of a test, measure, or variable in predicting outcomes or explaining variance when compared to other tests, measures, or variables.

Reliability

The degree to which an assessment tool, test, or method yields consistent and stable results over time.

Specifiers

Additional descriptors used in diagnostic classifications to provide more detailed characterizations of symptoms or disorders.