Risk in a Revenue-Producing Project Can Best Be Adjusted for by

question 48

Multiple Choice

Risk in a revenue-producing project can best be adjusted for by

• A) Ignoring it.
• B) Adjusting the discount rate upward for increasing risk.
• C) Adjusting the discount rate downward for increasing risk.
• D) Picking a risk factor equal to the average discount rate.
• E) Reducing the NPV by 10 percent for risky projects.

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Definitions:

Required Sales

The amount of sales a company needs to achieve in order to cover all its costs and reach its break-even point.

Variable

An element or factor that is subject to change or variation, often used in financial analysis or scientific experiments.

Fixed

Refers to expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Contribution Margin

The difference between a company's sales revenue and variable costs, which contributes to covering its fixed costs and generating profit.