Which of the Following Statements Is Correct

question 37

Multiple Choice

Which of the following statements is correct?

• A)Capital budgeting projects with fairly risky cash flows should be evaluated using relatively high discount rates (required rates of return).
• B)If managers want to maximize the firm's stock value, they should not be concerned with risk when making capital budgeting decisions.
• C)If a firm evaluates all capital budgeting projects using its existing required rate of return, its overall risk, as measured by its beta coefficient, probably will decline over time.
• D)If a firm has a beta coefficient that is less than 1.0, its existing required rate of return will be negatively correlated with the returns on most of the capital budgeting projects it evaluates in the future.
• E)A firm should use a different approach to estimate the riskiness of mutually exclusive projects than it uses to estimate the riskiness of independent projects.

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Definitions:

Investment Opportunity

An asset or item that can potentially generate a significant return or profit through appreciation, dividends, or interest.

Operations

The day-to-day activities involved in running a business, focusing on producing goods and services efficiently and effectively.

Variable Maintenance Costs

These are expenses that fluctuate in direct proportion to the level of activity or production, such as the costs of repairing machinery which increase with more intensive use.

Equipment Services Department

A division within an organization responsible for maintaining, repairing, and ensuring the operational efficiency of machinery and equipment.