If the firm is being operated so as to maximize shareholder wealth, and if our basic assumptions concerning the relationship between risk and return are true, then which of the following should be true?
A. If an asset's beta is larger than the firm's beta, then the required return on the asset is less than the required return on the firm.
B. If the beta of the asset is smaller than the firm's beta, then the required return on the asset is greater than the required return on the firm.
C. If the beta of the asset is greater than the firm's beta prior to the addition of that asset, then the firm's beta after the purchase of the asset will be smaller than the original firm's beta.
D. If the beta of an asset is larger than the firm's beta prior to the addition of that asset, then the required return on the firm will be greater after the purchase of that asset than prior to its purchase.
E. None of the statements is true.
Answer: D
You might also like to view...
Which of the following is not recommended by expert David Arnold for companies engaged in global market research?
A) use multiple indicators B) develop customized measures specific to an industry or product C) conduct comparative assessments in neighboring countries D) observation should be weighted more heavily than statements of purchase intention E) assess a particular market in isolation
An important reason to use a work sheet is to
a. aid the accountant in the daily preparation of journal entries. b. replace the journal when making adjusting and closing entries. c. check the accuracy of adjusting entries before they are entered formally into the accounting records. d. accompany the financial statements in the company's annual report.
The closing entry that would be made at the yearend transferring the interest expense of $50 on a note is:
a. Interest Expense 50 Notes payable 50 b. Interest Expense 50 Income Summary 50 c. Income Summary 50 Interest Expense 50 d. Notes payable 50 Interest Expense 50
Identify at least three general benefits derived from CAD
What will be an ideal response?