Scenario 5-3 Milk Has an Inelastic Demand and Beef Has an Elastic

question 408

Multiple Choice

Scenario 5-3
Milk has an inelastic demand and beef has an elastic demand.Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-3.The equilibrium price will

• A) increase in the milk market and increase in the beef market.
• B) increase in the milk market and decrease in the beef market.
• C) decrease in the milk market and increase in the beef market.
• D) decrease in the milk market and decrease in the beef market.

Understand the importance of project risk assessment beyond the use of WACC as a cutoff rate.

Acknowledge the influence of market conditions and investor behavior on firm's WACC and cost of capital.

Recognize the relevance of yield-to-maturity and debt rating in estimating the cost of debt.

Understand the potential errors of using WACC indiscriminately for all project evaluations.

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