Tallant Technologies Is Considering Two Potential Projects, X and Y

question 21

Multiple Choice

Tallant Technologies is considering two potential projects, X and Y. In assessing the projects' risks, the company estimated the beta of each project versus both the company's other assets and the stock market, and it also conducted thorough scenario and simulation analyses. This research produced the following data: Correlation of the project cash flows with cash flows from currently existing projects. Cash flows are not correlated with the cash flows from existing projects. Cash flows are highly correlated with the cash flows from existing projects.
Which of the following statements is CORRECT?

• A) Project X has more corporate (or within-firm) risk than Project Y.
• B) Project X has more market risk than Project Y.
• C) Project X has the same level of corporate risk as Project Y.
• D) Project X has less market risk than Project Y.
• E) Project X has more stand-alone risk than Project Y.

---

Definitions:

Monthly Lease Payments

Regular payments made for the use of property or equipment over a set period, typically agreed upon in a lease contract.

Production Equipment

The machinery and tools used in the production process to manufacture products.

Cost Of Goods Sold

The expenses directly linked to the creation of products a company sells, including both materials and labor costs.

Period Costs

Expenses that are not directly tied to the production of goods or services and are instead expensed in the period they are incurred, such as selling, general, and administrative expenses.