What Is the Possible Cost of Capital Rationing

question 56

Multiple Choice

What is the possible cost of capital rationing?

• A) The firm may have excess fixed assets.
• B) The firm is likely to take too many risky projects.
• C) The firm may miss out on positive NPV opportunities
• D) The firm may have too high a cost of capital.

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Definitions:

First-Order Autocorrelation

A statistical measure of the relationship between a variable's current value and its immediate previous value.

Durbin-Watson Test

A statistical method designed to identify the existence of autocorrelation with a single lag in the residuals resulting from a regression study.

Positive Autocorrelation

A statistical property of a series indicating that values close together in time are positively correlated and tend to move in the same direction.

Durbin-Watson Statistic

A statistical measure employed to identify autocorrelation within the residuals of a regression analysis.