The Index Model Has Been Estimated for Stocks a and B

question 7

Multiple Choice

The index model has been estimated for stocks A and B with the following results: R_A = 0.01 + 0.8R_M + e_A.
R_B = 0.02 + 1.2R_M + e_B.
Σ_M = 0.20; σ(e_A) = 0.20; σ(e_B) = 0.10.
The standard deviation for stock A is

• A) 0.0656.
• B) 0.0676.
• C) 0.2561.
• D) 0.2600.

Learn the concept of incremental cash flows, including working capital adjustments and cannibalization effects.

Understand the impact of sunk costs and why they are excluded from capital budgeting analysis.

Recognize the significance of the Capital Cost Allowance (CCA) system and its effects on cash flows and tax liabilities.

Comprehend the various methods of risk assessment and their implications on capital budgeting decisions.

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Definitions:

Watershed

A geographical area where all water running off the land drains into a shared body of water, such as a river, lake, or ocean.

Floodplain Zone

An area of land adjacent to a stream or river which stretches from the banks of its channel to the base of the enclosing valley walls and experiences flooding during periods of high discharge.

Marine Organisms

Living creatures that inhabit the ocean or sea, including both plants and animals.

Nekton

Aquatic animals that can swim and move independently of water currents, including fish, whales, and squids.