Which of the Following Statements Is Correct

question 35

Multiple Choice

Which of the following statements is correct?

• A)Sensitivity analysis is used frequently in capital budgeting analysis.Its big advantage is that because it shows correlations between changes in input variables and NPV, it accounts for within-firm risk.
• B)Other things held constant, the lower the correlation between a project's returns and returns on the market, the less risky the project.
• C)In judging the relative stand-along risks of a set of projects, the projects' standard deviations of NPV are a better measure than their coefficients of variation.
• D)One can run a regression of returns on a project versus returns on the firm's other assets, get a beta coefficient, and use this beta as a measure of the project's market risk.
• E)One can run a regression of returns on a project versus returns on the stock market, get a beta coefficient, and use this beta as a measure of the project's within-firm risk.

---

Definitions:

Noncurrent Assets

Assets not expected to be converted into cash within one year or the operating cycle, including property, plant, and equipment.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its short-term assets.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, representing ownership's claim.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company. This includes material and labor costs.