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Oksi-84 [34.3K]
3 years ago
6

Which of the following statements is CORRECT? Assume that the firm is a publicly-owned corporation and is seeking to maximize sh

areholder wealth.a. If a firm's managers want to maximize the value of their firm's stock, they should, in theory, concentrate on project risk as measured by the standard deviation of the project's expected future cash flows.b. If a firm evaluates all projects using the same cost of capital, and the CAPM is used to help determine that cost, then its risk as measured by beta will probably decline over time.c. Projects with above-average risk typically have higher than average expected returns. Therefore, to maximize a firm's intrinsic value, its managers should favor high-beta projects over those with lower betas.d. Project A has a standard deviation of expected returns of 20%, while Project B's standard deviation is only 10%. A's returns are negatively correlated with both the firm's other assets and the returns on most stocks in the economy, while B's returns are positively correlated. Therefore, Project A is less risky to a firm and should be evaluated with a lower cost of capital.e. If a firm has a beta that is less than 1.0, say 0.9, this would suggest that the expected returns on its assets are negatively correlated with the returns on most other firms' assets.
Business
1 answer:
melomori [17]3 years ago
6 0

Answer:

D. Project A has a standard deviation of expected returns of 20%, while Project B's standard deviation is only 10%. A's returns are negatively correlated with both the firm's other assets and the returns on most stocks in the economy, while B's returns are positively correlated. Therefore, Project A is less risky to a firm and should be evaluated with a lower cost of capital.

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DerKrebs [107]

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1. Since Jumbo's Restaurant is planning to close, the assumption of continuity (going concern) is no more applicable. This should be disclosed. Instead asset was still recorded at historical price which is misleading.

2. Gorloks Tax Services is an economic entity, and the property and assets of owners are not considered to be for the business. In this case the boat Sam bought was wrongly reported as an asset of the company.

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