Which of the Following Statements About Project Risk Analysis in Not-For-Profit

question 5

Multiple Choice

Which of the following statements about project risk analysis in not-for-profit firms is incorrect?

• A) a project's corporate beta measures the contribution of the project to the overall corporate risk of the firm.
• B) a project's corporate beta is found (at least conceptually) by regressing returns on the project against returns on the market portfolio.
• C) a project's corporate beta is defined as (σp/σf)rpf, where σp is the standard deviation of the project's returns, σf is the standard deviation of the firm's returns, and rpf is the correlation among the two sets of returns.
• D) in practice, it is usually difficult, if not impossible, to directly measure a project's corporate risk, so project risk analysis typically focuses on stand-alone risk.
• E) the market risk of a project is not relevant to not-for-profit firms.

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Definitions:

Constant Sales Mix

An assumption in cost-volume-profit analysis that the sales mix will remain unchanged as sales levels vary.

Assumption

A basic premise or belief that is accepted as true without proof as the basis for argument or inference.

Multiproduct Company

A business entity that manufactures or sells more than one type of product, often across different product lines or industries.

Sales Volumes

The total quantity of a product or service sold by a company during a specific period.