Question
If a firm is considering purchasing an asset whose beta is greater than the current beta of the firm's other assets, the financial manager: a.
If a firm is considering purchasing an asset whose beta is greater than the current beta of the firm's other assets, the financial manager:
a. Should use the current cost of capital for the firm as the discount rate since a single asset has no impact on the cost of capital
b. Should consider using a discount rate greater than the firm's current cost of capital to evaluate the possible investment and adjust for the greater risk
c. Should use only the cost of equity rather than the cost of capital as a discount rate since the beta only impacts the equity cost
d. Should automatically reject this asset since its beta is larger
e. Should give this asset more weight when calculating the firm's asset portfolio beta since this asset has a greater beta
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