Which One of the Following Statements Is Correct

question 9

Multiple Choice

Which one of the following statements is correct?

• A)Firms should accept low risk projects prior to funding high risk projects.
• B)Making subjective adjustments to a firm's WACC when determining project discount rates unfairly punishes low-risk divisions within a firm.
• C)A project that is unacceptable today might be acceptable tomorrow given a change in market returns.
• D)The pure play method is most frequently used for projects involving the expansion of a firm's current operations.
• E)Firms that elect to use the pure play method for determining a discount rate for a project cannot subjectively adjust the pure play rate.

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Definitions:

Marginal Cost

The cost of producing one additional unit of a good or service, crucial for decision-making in production and pricing strategies.

Average Variable Cost

The total variable costs of production (costs that change with output level) divided by the quantity of output produced, indicating the variable cost per unit of output.

Average Fixed Cost

The fixed costs of production (those that do not change with the level of output) divided by the quantity of output produced.

Average Total Cost

The cost of producing one unit, calculated by dividing the entire production cost by the quantity of units made.