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Questions and Answers
Which of the following is true about risky projects?
Which of the following is true about risky projects?
- Risky projects have the same risk as the company's overall business.
- Risky projects require higher rates of return. (correct)
- Risky projects are more valuable than safe ones.
- Smart financial managers do not consider risk when evaluating projects.
What is the benchmark risk-adjusted discount rate for new investments?
What is the benchmark risk-adjusted discount rate for new investments?
- The company cost of capital. (correct)
- The average rate of return demanded.
- The rate of return on safe projects.
- The opportunity cost of capital.
How is the company cost of capital estimated?
How is the company cost of capital estimated?
- As the rate of return on risky projects.
- As the weighted-average cost of capital. (correct)
- As the average rate of return demanded.
- As the rate of return on safe projects.
When is the opportunity cost of capital greater than the company cost of capital?
When is the opportunity cost of capital greater than the company cost of capital?
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What do smart financial managers do when evaluating risky projects?
What do smart financial managers do when evaluating risky projects?
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Why do smart financial managers demand higher rates of return from risky projects?
Why do smart financial managers demand higher rates of return from risky projects?
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What is the benchmark risk-adjusted discount rate for new investments based on?
What is the benchmark risk-adjusted discount rate for new investments based on?
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How is the company cost of capital usually estimated?
How is the company cost of capital usually estimated?
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When is the opportunity cost of capital greater than the company cost of capital?
When is the opportunity cost of capital greater than the company cost of capital?
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What is the relationship between the value of risky projects and safe projects, according to the text?
What is the relationship between the value of risky projects and safe projects, according to the text?
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