A Firm Is Considering the Purchase of an Asset Whose

question 24

Multiple Choice

A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm, based on any method for assessing risk. In evaluating this asset, the decision maker should:

• A) decrease the internal rate of return (IRR) of the asset to reflect the greater risk.
• B) decrease the net present value NPV of the asset to reflect the greater risk.
• C) reject the asset, since its acceptance would increase the risk of the firm.
• D) ignore the risk differential if the asset to be accepted would comprise only a small fraction of the total assets of the firm.
• E) increase the required rate of return from the project to reflect the higher risk of the project.

---

Definitions:

Quebec

A province in Canada known for its French-speaking population and distinct legal and cultural identity.

Law of Equity

The law of equity refers to a set of principles that allow courts to apply justice based on fairness, in situations where the application of strict legal rules would result in an unjust outcome.

Precedent

A legal case that establishes a principle or rule that is followed by courts in future cases with similar issues or facts.

Civil Code

A comprehensive collection of laws and legal principles that deal with the rights and duties of individuals and legal entities in private matters.