In Order to Value a Project Which Is Not Scale

question 35

Multiple Choice

In order to value a project which is not scale enhancing you need to:

• A) typically calculate the equity cost of capital using the risk adjusted beta of another firm in the industry before calculating the WACC.
• B) typically increase the beta of another firm in the same line of business and then calculate the discount rate using the SML.
• C) typically you can simply apply your current cost of capital.
• D) discount at the market rate of return since the project will diversify the firm to the market.
• E) typically calculate the equity cost of capital using the risk adjusted beta of another firm in another industry before calculating the WACC.

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Definitions:

Marginal Utility

The increase in satisfaction or utility derived from the consumption of an additional unit of a good or service.

Utility-Maximizing

A theoretical concept in economics that individuals or firms seek to achieve the greatest satisfaction or profit from their actions, subject to their resources.

Price

The amount of money expected, required, or given in payment for something.

Money Income

Income received in the form of money rather than in-kind benefits or goods, crucial for determining purchasing power and standard of living.