If the Risk of an Investment Project Is Different Than

question 11

Multiple Choice

If the risk of an investment project is different than the firm's risk then:

• A) you must adjust the discount rate for the project based on the firm's risk.
• B) you must adjust the discount rate for the project based on the project risk.
• C) you must exercise risk aversion and use the market rate.
• D) an average rate across prior projects is acceptable because estimates contain errors.
• E) one must have the actual data to determine any differences in the calculations.

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Definitions:

Muscle Control

The ability to direct and coordinate muscle movement in the body.

Stimulus Motive

An intrinsic desire to explore and interact with the environment, driven by external stimuli.

Primary Drive

A basic, innate urge or motivation, such as hunger or thirst, that prompts an organism to take action to satisfy its needs.

Secondary Drive

A learned association that becomes as motivating as primary biological drives through conditioning, such as the desire for money because it buys food.