Firm Is Considering a New Project Whose Risk Is Greater

question 33

Multiple Choice

firm is considering a new project whose risk is greater than the risk of the firm's average project, based on all methods for assessing risk.In evaluating this project, it would be reasonable for management to do which of the following?

• A)Increase the estimated IRR of the project to reflect its greater risk.
• B)Increase the estimated NPV of the project to reflect its greater risk.
• C)Reject the project, since its acceptance would increase the firm's risk.
• D)Ignore the risk differential if the project would amount to only a small fraction of the firm's total assets.
• E)Increase the cost of capital used to evaluate the project to reflect its higher-than-average risk.

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Definitions:

Respected And Admired

Being held in high esteem and receiving recognition or admiration from others due to one's qualities or achievements.

Frontal Lobe

The part of the brain located at the front of the head, responsible for important cognitive skills, such as emotional expression, problem solving, memory, and judgment.

Observational Learning

Learning that takes place through watching the actions and outcomes of others’ behaviors.

Observational Learning

A learning process whereby individuals acquire behaviors, knowledge, or skills by watching and imitating others.