Which of the Following Adjustment Techniques Would Be Preferred to Account

question 113

Multiple Choice

Which of the following adjustment techniques would be preferred to account for additional project risk?

• A) Increase the discount rate.
• B) Adjust expected cash flows downward.
• C) Increase the beta.
• D) Adjust the market risk premium.

---

Definitions:

DFL

Degree of Financial Leverage; a measure that evaluates the sensitivity of a company's earnings per share to fluctuations in its operating income, highlighting the impact of financial leverage.

DOL

Degree of Operating Leverage, a measure of a company's operating risk by quantifying how a change in sales affects its operating income.

Earnings Per Share (EPS)

Earnings Per Share (EPS) is a financial metric that divides a company's profit attributable to each outstanding share of common stock, indicating the company's profitability.

Business Risk

The exposure a company or investor has to factors that can lower its profits or lead to its failure.