The Problem of Using the Overall Firm's Beta in Discounting

question 33

Multiple Choice

The problem of using the overall firm's beta in discounting projects of different risk is the:

• A) firm would accept too many high-risk projects.
• B) firm would reject too many low risk projects.
• C) firm would reject too many high-risk projects.
• D) firm would accept too many low risk projects.
• E) Both firm would accept too many high-risk projects; and firm would reject too many low risk projects.

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Definitions:

Block Pricing

A pricing strategy where different quantities of a product or service are sold at different prices, usually implying that larger quantities are sold at a lower per-unit price.

First-Degree Price Discrimination

Practice of charging each customer her reservation price.

Marginal Revenue

The increase in revenue resulting from the sale of one additional unit of a product or service.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually do pay.