If a Firm Uses Its Weighted Average Cost of Capital

question 49

Multiple Choice

If a firm uses its weighted average cost of capital (WACC) to evaluate all capital budgeting projects, which of the following could occur?

• A)Projects with little or no risk might be rejected when they actually should be accepted.
• B)Projects with significant risks might be accepted when the actually should be rejected.
• C)Projects with average risk will always be rejected when they actually should be rejected.
• D)All of the above could occur.
• E)None of the above could occur.

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Definitions:

Senior Executives

Top-level managers or officers within a company, responsible for directing its strategy and managing its operations.

Vesting Rights

The process by which an employee accrues non-forfeitable rights over employer-provided stock incentives or pension plans contributions after a period of time.

Pension Benefits

Financial payments made to individuals after retirement, based on their previous employment’s duration and earnings.

Fair Labor Standards Act

A US federal law that establishes minimum wage, overtime pay eligibility, recordkeeping, and child labor standards affecting full-time and part-time workers.