The Subjective Approach to Project Analysis

question 2

Multiple Choice

The subjective approach to project analysis:

• A)is used only when a firm has an all-equity capital structure.
• B)uses the WACC of firm X as the basis for the discount rate for a project under consideration by firm Y.
• C)assigns discount rates to projects based on the discretion of the senior managers of a firm.
• D)allows managers to randomly adjust the discount rate assigned to a project once the project's beta has been determined.
• E)applies a lower discount rate to projects that are financed totally with equity as compared to those that are partially financed with debt.

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Definitions:

Drawer

The person who writes or issues a cheque or draft, instructing his or her bank to pay a specified sum of money to a named party.

Draft

An initial version of a document, plan, or proposal that is subject to revision or editing.

Drawee

The party in a financial transaction, such as a check or draft, upon whom the order to pay is made; typically a bank.

Presenter's Warranties

Guarantees provided by the individual or entity presenting a document (e.g., a check or draft) indicating its authenticity and validity.