Large Firms Are Most Likely to Adjust for Differences in the Risk

question 110

Multiple Choice

Large firms are most likely to adjust for differences in the risk levels of investments taken on by different parts of the firm

• A)by subjectively adjusting the company's WACC up or down.
• B)by estimating individual costs of capital for each individual project.
• C)by estimating individual costs of capital for each division or unit of the company.
• D)by identifying the specific sources of funding used by each division or unit.

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Definitions:

Monetarists

Economists who believe that variations in the money supply have major influences on national output in the short run and the price level over longer periods, and that the objectives of monetary policy are best met by targeting the growth rate of the money supply.

Monetary Rule

A guideline for the monetary policy stating that the central bank should aim at regulating the money supply to maintain stable prices, output, and employment.

Rational Expectations

An economic theory proposing that individuals make decisions based on their best forecast using all available information, predicting future events with some degree of accuracy.

Federal Reserve

The central bank of the United States, responsible for monetary policy.