Question
1. The most appropriate risk adjustment method for a firm that calculates an overall corporate WACC, yet has divisions with substantially different risk characteristics, is
1.
The most appropriate risk adjustment method for a firm that calculates an overall corporate WACC, yet has divisions with substantially different risk characteristics, is most likely a(n):
Select one:
a. Simulation approach.
b. Empirical approach.
c. Unbiased approach.
d. Objective approach.
e. Subjective approach.
2.
The company cost of capital may be an inappropriate discount rate for a capital budgeting proposal if:
Select one:
a. it calculates a negative NPV for the proposal.
b. the company expects to earn more than the risk-free rate.
c. the company has unique risk.
d. the proposal has a different degree of risk.
3.
When firms develop a WACC for individual projects based on the cost of capital for other firms in similar lines of business as the project, the firm is utilizing a _______________.
Select one:
a. capital adjustment approach
b. divisional cost of capital approach
c. pure play approach
d. subjective risk approach
e. security market line approach
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started