Using the Security Market Line Concept in Capital Budgeting,which of the Following

question 1

Multiple Choice

Using the Security Market Line concept in capital budgeting,which of the following statements is CORRECT?

• A)If the expected rate of return on a given capital project lies above the SML, the project should be accepted even if its beta is greater than the beta of the firm's average project.
• B)If a project's return lies below the SML, it should be rejected if it has a beta greater than the firm's existing beta but accepted if its beta is below the firm's beta.
• C)If two mutually exclusive projects' expected returns are both above the SML, the project with the lower risk should be accepted.
• D)If a project's expected rate of return is greater than the expected rate of return on an average project, it should be accepted.
• E)None of the statements is correct.

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