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:

Cash

Currency and other liquid instruments that a company owns and can use immediately to pay for goods, services, or liabilities.

Cash Dividend

A cash dividend is a payment made by a company to its shareholders from its profits in the form of cash.

Current Liabilities

Financial obligations a company is due to pay within a year, including accounts payable, short-term loans, and taxes owed.

Stockholders' Equity

Represents the ownership interest of shareholders in the corporation, calculated as total assets minus total liabilities.