Shareholders in a Leveraged Firm Might Wish to Accept a Negative

question 92

Multiple Choice

Shareholders in a leveraged firm might wish to accept a negative net present value project if:

• A) it increases the standard deviation of the returns on the firm's assets.
• B) it lowers the variance of the returns on the firm's assets.
• C) it lowers the risk level of the firm.
• D) it diversifies the cash flows of the firm.
• E) it decreases the risk that a firm will default on its debt.

---

Definitions:

Opportunity Cost

The cost of what you have to give up in order to choose something else.

Output

The sum of all goods or services created by an enterprise, industry, or the economy over a certain period.

Economic Profits

The profit or loss calculated by taking out both straightforward and assumed expenses from total income.

Purely Competitive

A business environment marked by the proliferation of many small enterprises, a uniform product, and effortless procedures for both entry and exit.