Diversified Industries Is a Multiproduct Company Operating in a Number

question 27

Multiple Choice

Diversified Industries is a multiproduct company operating in a number of industries.Assume the company is analyzing a new project that has risks unrelated to those of the current company's products.When computing the net present value of the new project the cash flows should be discounted using

• A)a rate based on a beta of one since the company is well diversified.
• B)a rate based on the company's current beta.
• C)the risk-free rate of return.
• D)the market rate of return.
• E)a rate commensurate with the risk level of the project.

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Definitions:

Industrial Revolution

The transition to new manufacturing processes in Europe and the United States, from the late 18th century to the early 19th century, which included the development of mechanized production methods.

Steam Engine

A heat engine that performs mechanical work using steam as its working fluid, fundamental to the Industrial Revolution for its role in powering machinery, trains, and ships.

Internet

A global network of interconnected computers that enables users to access information and communicate with each other across the world.

Communist Government

A political system where the state controls the economy and aims to achieve equality and the elimination of social classes through the abolition of private property.