1. If a firm uses its weighted average cost of capital (WACC) to evaluate all capital budgeting projects, which of the following could occur?
a. Projects with little or no risk might be rejected when they actually should be accepted.
b. Projects with significant risks might be accepted when the actually should be rejected.
c. Projects with average risk will always be rejected when they actually should be rejected.
d. All of the above could occur.
e. None of the above could occur.
2. Which of the following is not a reason for firms to own marketable securities?
a. Marketable securities offer a place to temporarily put cash balance to work earning a positive return.
b. Marketable securities serve as a substitute for cash balances.
c. Marketable securities are used as a temporary investment to finance seasonal or cyclical operations.
d. Marketable securities are more liquid than cash balances.
e. Marketable securities are used as a temporary investment to amass funds to meet financial requirements in the near future.