Assigning Discount Rates to Individual Projects Based on the Risk

question 54

Multiple Choice

Assigning discount rates to individual projects based on the risk level of each project:

• A)may cause the firm's overall weighted average cost of capital to either increase or decrease over time.
• B)will prevent the firm's overall cost of capital from changing over time.
• C)will cause the firm's overall cost of capital to decrease over time.
• D)decreases the value of the firm over time.
• E)negates the firm's goal of creating the most value for the shareholders.

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Definitions:

Slope of Budget Line

The slope represents the rate at which a consumer can trade one good for another while staying within their budget.

Consumer Income

The total earnings of an individual or household that can be used for saving or spending on goods and services after taxes and other deductions.

Price of A

The amount of money required to purchase a specific good or service, denoted as "A".

Price of B

The monetary value or cost assigned to a good or service denoted as "B."