Which of the Following Statements Is Correct

question 29

Multiple Choice

Which of the following statements is correct?

• A)Well-diversified stockholders do not consider a firm's corporate risk when establishing their required rates of return.
• B)Undiversified stockholders, including the owners of small businesses, probably are more concerned about the corporate risk associated with a particular firm than are diversified stockholders.
• C)Empirical studies to determine the factors that affect required rates of return (r) have concluded that only market risk affects stock prices; i.e., neither corporate risk nor stand-alone risk has any impact on required rates of return.
• D)A firm's market risk is important, but it does not directly affect stock prices because it only affects the firm's beta.
• E)A firm's market risk is not an important factor in determining its required rate of return.

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Definitions:

Operating Activities

Activities that relate directly to the running of a business for profit, including production, sales, and distribution.

Net Income

The amount of profit left after all operating expenses, taxes, and interest are deducted from total revenue.

Indirect Method

In cash flow statement preparation, refers to starting with net income and adjusting for non-cash transactions to calculate operating cash flow.

Accounts Payable

Liabilities of a business that represent amounts owed to creditors for goods and services received but not yet paid for.