A Consequence for a Company That Uses a Single Discount

question 41

Multiple Choice

A consequence for a company that uses a single discount rate to evaluate projects is that:

• A)high systematic risk divisions will find it hard to have their projects accepted.
• B)low systematic risk divisions will find it easy to have their projects accepted.
• C)high systematic risk divisions are likely to stagnate and even close down.
• D)the systematic risk of the company will drift upward over time.

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Definitions:

Variable Costs

Costs that vary directly with the level of production or volume of output, such as raw materials and direct labor.

Fixed Costs

Costs that remain constant regardless of the volume of goods or services produced by a business.

Net Income

The total profit of a company after operating expenses, taxes, and all other incomes and expenses have been deducted from total revenue.

Variable Costs

Costs that change in proportion with the level of production or sales volume, such as materials and labor.