A firm can be viewed as
A) a portfolio of individual projects, each with its own risks, cost of capital, and returns.
B) a collection of equity shares comprising it.
C) a collection of debt instruments financing it.
D) a portfolio of all individual projects in the industry, each with its own risks, cost of capital, and returns.

Question

Quizplus · Accepted Answer

A firm can be viewed as a portfolio of individual projects, each with its own risks, cost of capital, and returns. The firm's management decides which projects to undertake and how to finance them, based on their expected returns and the cost of capital. The goal is to maximize the overall value of the firm by investing in projects with positive net present values. This view of the firm helps to explain why a firm's cost of capital is important, as it determines the required return on investments and thus affects the selection of projects.

A Firm Can Be Viewed as