A Firm Is Considering the Purchase of an Asset Whose

question 58

Multiple Choice

A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm,based on any method for assessing risk.In evaluating this asset,the decision maker should

• A) Increase the IRR of the asset to reflect the greater risk.
• B) Increase the NPV of the asset to reflect the greater risk.
• C) Reject the asset,since its acceptance would increase the risk of the firm.
• D) Ignore the risk differential if the asset to be accepted would comprise only a small fraction of the total assets of the firm.
• E) Increase the required rate of return used to evaluate the project to reflect the higher risk of the project.

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Definitions:

Cool

Often refers to a temperature perception that is moderately cold or somewhat below room temperature, but can also describe something trendy or fashionable.

Dry Air

Air that contains little or no moisture, often characterized by low humidity.

El Niño

El Niño is a climate phenomenon that involves the periodic warming of sea surface temperatures in the central and eastern Pacific Ocean, impacting weather patterns globally.

La Niña

A climate pattern characterized by cooler than average sea surface temperatures in the central and eastern tropical Pacific Ocean, influencing global weather patterns.