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:

Disruptive Selection

A form of natural selection where extreme values for a trait are favored over intermediate values, potentially leading to the evolution of distinct forms within a population.

Stabilizing Selection

A type of natural selection that favors the average individuals in a population, reducing variation around the mean phenotype.

Antibiotic Resistance

The ability of bacteria to withstand the effects of antibiotics, often through genetic mutations or acquisition of resistance genes.

Phenotype Frequency

Phenotype frequency refers to the proportion of individuals in a population that exhibit a specific observable trait or phenotype.