If the Company Cost of Capital Is 20% and a Proposed

question 40

Multiple Choice

If the company cost of capital is 20% and a proposed project's cost of capital is 15%,then discounting the projects' cash flows at 20% would:

• A) determine where the project plots in relation to the security market line.
• B) make the project look more attractive than it should be.
• C) be correct from a theoretical perspective.
• D) be incorrect and could cause the project to be erroneously rejected.

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Definitions:

Marginal Revenue

The additional income earned from selling one more unit of a good or service, crucial for decision-making on output levels.

Unit Elastic

A situation in economics where a change in the price of a product leads to a proportional change in the quantity demanded or supplied, resulting in an elasticity of exactly one.

Tax

A compulsory financial charge or levy imposed by a government on individuals or businesses to fund public expenditures.

State Government

The government of a specific state within a country, which operates under that country's constitution to manage local laws and regulations.