Currently,Powell Products Has a Beta of 1

question 72

Multiple Choice

Currently,Powell Products has a beta of 1.0,and its sales and profits are positively correlated with the overall economy.The company estimates that a proposed new project would have a higher standard deviation and coefficient of variation than an average company project.Also,the new project's sales would be countercyclical in the sense that they would be high when the overall economy is down and low when the overall economy is strong.On the basis of this information,which of the following statements is CORRECT?

• A) The proposed new project would have more stand-alone risk than the firm's typical project.
• B) The proposed new project would increase the firm's corporate risk.
• C) The proposed new project would increase the firm's market risk.
• D) The proposed new project would not affect the firm's risk at all.
• E) The proposed new project would have less stand-alone risk than the firm's typical project.

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Definitions:

Somatic Nervous System

A part of the peripheral nervous system that handles voluntary control of body movements via skeletal muscles.

Autonomic

Pertaining to the part of the nervous system that controls involuntary actions of the muscles and glands.

Somatic

Pertaining to the body, especially as distinct from the mind or spirit, often in context with sensory experiences or the voluntary nervous system.

Parasympathetic Nervous System

A division of the autonomic nervous system responsible for stimulating "rest and digest" activities, slowing down the heart rate, and increasing intestinal and gland activity.