Which of the following statements is correct?
A) A relatively risky future cash outflow should be evaluated using a relatively high discount rate.
B) If a firm's managers want to maximize the value of the stock, they should concentrate exclusively on the projects' market, or beta, risk.
C) If a firm evaluates all projects using the same required rate of return to determine NPVs, then the riskiness of the firm as measured by its beta will probably decline over time.
D) If a firm has a beta that is less than 1.0, say 0.9, this would suggest that its assets' returns are negatively correlated with the returns of most other firms' assets.
E) Project risk estimation is independent of the beta coefficient.

Question

Quizplus · Accepted Answer

A relatively risky future cash outflow should be evaluated using a relatively high discount rate. The higher the risk, the higher the required rate of return or discount rate that should be used to evaluate the project. This is in line with the basic principle of finance – higher risk results in higher return.

Which of the Following Statements Is Correct