[Anonymous]

Capital investments require balancing risk and return. Managers have a responsibility to ensure that the investments that they make in their own firms increase shareholder value. Managers have met that responsibility if the return on the capital investment:
a. Is greater than the prime rate of return.
b. Is less than the prime rate of return.
c. Exceeds the rate of return associated with the firm’s beta factor.
d. Is less than the rate of return associated with the firm’s beta factor.

Explanation
Choice “c” is correct. A capital investment whose rate of return exceeds the rate of return associated with the firm’s beta factor will increase the value of the firm.

Can someone explain to me what ‘rate of return associated with the firm’s beta factor’ mean?
From my understanding Beta is the numeric representation of the volatility of the firm’s stock relative to the volatility of the overall market. So what is the rate of return associated with beta?

[shawn in VA]

This does not help with your question but you realize that according to MANY posters the exam in Q1 is VERY IT HEAVY. If your taking exam in Q1 it may be beneficial to open up the college IT textbook….

AUD - 84
BEC - 81
FAR - NINJA in Training
REG - 75

AUD - 84

BEC-  81

REG-75

FAR- TBD

[Author]

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