Tallant Technologies Is Considering Two Potential Projects,X and Y

question 9

Multiple Choice

Tallant Technologies is considering two potential projects,X and Y.In assessing the projects' risks,the company estimated the beta of each project versus both the company's other assets and the stock market,and it also conducted thorough scenario and simulation analyses.This research produced the following data:
Correlation of the project cash flows with cash flows from currently existing projects.Cash flows are not correlated with the cash flows from existing projects.Cash flows are highly correlated with the cash flows from existing projects.
Which of the following statements is CORRECT?

• A) Project X has more corporate (or within-firm) risk than Project Y.
• B) Project X has more market risk than Project Y.
• C) Project X has the same level of corporate risk as Project Y.
• D) Project X has less market risk than Project Y.
• E) Project X has more stand-alone risk than Project Y.

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Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its earnings without needing to increase financial leverage or equity financing.

Financial Ratios

Quantitative measures used to assess various aspects of a company's financial health and performance.

Financial Planning

The process of estimating the capital required and determining the company's competition, involves formulating financial policies in relation to procurement, investment, and administration of funds.

Income Statement

A financial statement that shows a company's revenues, expenses, and profit or loss over a specific period of time.