Holding risk constant, the implementation of projects with a rate of return above the cost of capital will decrease the value of the firm, and vice versa.

Question

Quizplus · Accepted Answer

The statement is incorrect. Implementing projects with a rate of return above the cost of capital will increase the value of the firm, not decrease it. This is because the return on investment for the project is higher than the cost of financing it, resulting in a positive net present value and an increase in the overall value of the firm.

Holding Risk Constant, the Implementation of Projects with a Rate