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Which of the following is FALSE? Select one: a. Capital budgeting is the process of evaluating...

Which of the following is FALSE?
Select one:
a. Capital budgeting is the process of evaluating and selecting short-term investments that are consistent with the firm's goal of maximizing owners' wealth.
b. The purchase of additional physical facilities, such as additional property or a new factory, is an example of a capital expenditure.
c. Capital budgeting techniques are used to evaluate a firm's fixed asset investments which provide the basis for the firm's earning power and value.
d. Capital expenditure proposals are reviewed to assess their appropriateness in light of a firm's overall objectives and plans, and to evaluate their economic validity.


Which of the following is FASLSE?
Select one:
a. Systematic risk is that portion of an asset's risk that is attributable to firm-specific, random causes.
b. The difference between the return on the market portfolio of assets and the risk-free rate of return represents the premium the investor must receive for taking the average amount of risk associated with holding the market portfolio of assets.
c. Diversified investors should be concerned solely with nondiversifiable risk because they can easily create a portfolio of assets that will eliminate all, or virtually all, diversifiable risk.
d. Nondiversifiable risk reflects the contribution of an asset to the risk, or standard deviation, of the portfolio.

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Homework Answers

Answer #1

Question 1:

Option A. Capital budgeting is the process of evaluating and selecting short-term investments that are consistent with the firm's goal of maximizing owners' wealth is false

Capital budgeting techniques is for long term investments but not for short term investments.

Question 2:

Option A. Systematic risk is that portion of an asset's risk that is attributable to firm-specific, random causes.

Systematic risk refers to the risk inherent to the entire market or market segment. Systematic risk, also known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry. This type of risk is both unpredictable and impossible to completely avoid.

it is not a portion of assets risk.

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