Wansley Enterprises Is Considering a New Project

question 14

Multiple Choice

Wansley Enterprises is considering a new project.The company has a beta of 1.0, and its sales and profits are positively correlated with the overall economy.The company estimates that the proposed new project would have a higher standard deviation and coefficient of variation than an average company project.Also, the new project's sales would be countercyclical in the sense that they would be high when the overall economy is down and low when the overall economy is strong.On the basis of this information, which of the following statements is CORRECT?

• A) The proposed new project would increase the firm's corporate risk.
• B) The proposed new project would increase the firm's market risk.
• C) The proposed new project would not affect the firm's risk at all.
• D) The proposed new project would have less stand-alone risk than the firm's typical project.
• E) The proposed new project would have more stand-alone risk than the firm's typical project.

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Definitions:

Intangible Products

Non-physical goods or services such as intellectual property, consulting, and insurance, that cannot be seen, touched, or physically measured.

Merchandise Trade Balance

The difference in value between a country's imports and exports of goods, excluding services.

Intangibles

Assets that have no physical form but possess value, such as intellectual property or brand reputation.

Financial Assets

Economic resources or investments that are paper or digital, such as stocks, bonds, and bank deposits.