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:

Discriminatory Actions

Behaviors or practices that unfairly differentiate individuals or groups based on characteristics such as race, age, gender, or disability.

Mental Illness

A broad category of conditions affecting mood, thinking, and behavior, covering disorders such as depression, anxiety disorders, schizophrenia, and bipolar disorder.

Genetically Transmitted

Relates to traits or conditions passed from parents to offspring through genes, embodying hereditary characteristics or diseases.

Government Disability

Financial assistance and support services provided by government agencies to individuals who have disabilities that inhibit their ability to work.