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:

Plant Capacity

The maximum output level that a manufacturing facility can sustainably maintain within a given period.

Customer Demand

The quantity of products or services that consumers are willing and able to purchase at different price levels.

Objective Function

A mathematical function used in optimization to define the goal of the optimization problem, typically to be maximized or minimized.

Unit Cost

Unit cost is the total expenditure incurred to produce, store, and sell one unit of a product or service, calculated by dividing the total cost by the number of units produced.