A Firm Is Considering a New Project Whose Risk Is

question 69

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

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Definitions:

College Students

Individuals enrolled in institutions of higher education to pursue degree programs.

Poisson Probabilities

Probabilities that describe the likelihood of a given number of events happening in a fixed interval of time or space, assuming the events occur with a known constant rate and independently of the time since the last event.

Poisson Formula

A mathematical formula used to calculate the probability of a given number of events happening in a fixed interval of time or space, assuming events occur with a known constant mean rate and independently of the time since the last event.

Compute

To perform mathematical calculations or process data using a computer or computational algorithm.