Identify a Common Method of Applying This Technique or Quantifying

question 57

Multiple Choice

Identify a common method of applying this technique or quantifying the solution.

• A) Cost-benefit analysis
• B) Return on investment
• C) Net present value
• D) Payback period
• E) All of the above

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Definitions:

Agency Costs

Expenses arising from the conflict of interest between a company's management or its shareholders and its creditors.

Financial Risk

The risk added by the use of debt financing. Debt financing increases the variability of earnings before taxes (but after interest); thus, along with business risk, it contributes to the uncertainty of net income and earnings per share. Business risk plus financial risk equals total corporate risk.

Market Risk

The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets.

Diversifiable Risk

The portion of investment risk that can be reduced or eliminated through diversification among different assets.