Shareholders in a Leveraged Firm Might Wish to Accept a Negative

question 11

Multiple Choice

Shareholders in a leveraged firm might wish to accept a negative net present value project if:

• A)it lowers the risk level of the firm.
• B)it lowers the variance of the returns on the firm's assets.
• C)it increases the standard deviation of the returns on the firm's assets.
• D)it decreases the risk that a firm will default on its debt.
• E)it diversifies the cash flows of the firm.

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Definitions:

Mark-up

A surplus included in the goods' purchase price to compensate for overhead costs and gain, determining the final sales price.

Cost

The cost involved in buying an item or the financial outlay needed to produce a good or service.

Mark-up

The amount added to the cost price of goods to cover overhead and profit, expressed as a percentage of the cost.

Markdown

A reduction from the original or listed price of a good or service, often used to stimulate sales or clear out inventory.