A Firm Uses Its Weighted Average Cost of Capital to Evaluate

question 28

Multiple Choice

A firm uses its weighted average cost of capital to evaluate the proposed projects for all of its varying divisions.By doing so, the firm:

• A)automatically gives preferential treatment in the allocation of funds to its riskiest division.
• B)encourages the division managers to recommend only their most conservative projects.
• C)maintains the current risk level and capital structure of the firm.
• D)automatically maximizes the total value created for its shareholders.
• E)allocates capital funds evenly among its divisions.

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Definitions:

Reciprocal Liking

The phenomena where people tend to like others who like them in return.

Primacy Effect

The cognitive phenomenon where individuals are more likely to remember and give more weight to information that is presented first in a series.

Matching Hypothesis

The notion that people tend to have lovers or spouses who are similar to themselves in physical attractiveness and other assets.

Conformity

is the act of matching attitudes, beliefs, and behaviors to group norms, policies, or societal expectations.