Currently,Powell Products Has a Beta of 1

question 48

Multiple Choice

Currently,Powell Products has a beta of 1.0,and its sales and profits are positively correlated with the overall economy.The company estimates that a proposed new project would have a higher standard deviation and coefficient of variation than one of the company's average projects.Also,the new project's sales would be countercyclical in the sense that they would be high when the overall economy is down and low when the overall economy is strong.On the basis of this information,which of the following statements is correct?

• A)The proposed new project would have more stand-alone risk than the firm's typical project.
• B)The proposed new project would increase the firm's corporate risk.
• C)The proposed new project would not affect the firm's risk at all.
• D)The proposed new project would have less stand-alone risk than the firm's typical project.

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Definitions:

Lemons

In economics, a term used to describe a product of significantly lower quality than what was expected, particularly in the context of used vehicles.

Potential Buyers

Individuals or entities that show interest in purchasing a product or service but have not yet made the decision to buy.

Relative Measure

A comparative metric that evaluates a data point or performance outcome in relation to another baseline or standard.

Emission Output

The total quantity of pollutants released into the environment, often measured in the context of industrial operations or vehicle emissions.