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:

Autoclave

A device that uses steam under pressure to sterilize medical or laboratory instruments.

Steam Cycle

A process involving the heating, evaporation, and subsequent condensation of water to generate power, often used in power plants and engines.

Drying Cycle

The process or period during which moisture is removed from items, typically in a dryer, until they are deemed dry.

Autoclaves

sterilization devices that use steam under pressure to kill bacteria, viruses, fungi, and spores on medical or scientific equipment.