A Firm Is Considering a New Project Whose Risk Is

question 46

Multiple Choice

A firm is considering a new project whose risk is greater than the risk of the firm's average project, based on all methods for assessing risk. In evaluating this project, it would be reasonable for management to do which of the following?

• A) increase the estimated npv of the project to reflect its greater risk.
• B) reject the project, since its acceptance would increase the firm's risk.
• C) ignore the risk differential if the project would amount to only a small fraction of the firm's total assets.
• D) increase the cost of capital used to evaluate the project to reflect its higher-than-average risk.
• E) increase the estimated irr of the project to reflect its greater risk.

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Definitions:

Product Structure

An organizational framework that groups together all the elements involved in producing a specific product or product line.

Organizational Structures

The framework within which organizational tasks are divided, resources are allocated, and departments are coordinated.

Functional Structure

An organizational format that divides a company according to specialization, such as marketing, finance, and production.

Geographical Structure

An organization structure that groups together people and jobs performed in the same location.