A Firm Is Considering a New Project Whose Risk Is

question 48

Multiple Choice

A 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:

Intestinal Absorption

The process by which nutrients from food are absorbed through the small intestine's lining into the bloodstream.

Monoglycerides

Fatty acids bonded to a glycerol molecule; a type of lipid used as an emulsifier in various food products.

Disaccharides

Carbohydrates composed of two monosaccharide molecules bonded together, such as sucrose and lactose.

Stomach Ulcers

Sores that develop on the lining of the stomach, upper small intestine, or esophagus, often resulting from Helicobacter pylori infection or the use of NSAIDs.