A Firm Is Considering a New Project Whose Risk Is

question 48

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

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Definitions:

Acute Stressor

A short-term cause of stress that triggers an immediate physiological response, typically perceived as challenging or threatening.

Duration

The length of time that something continues or exists, often referring to events or conditions.

Inconveniences

Minor difficulties or disturbances that cause a temporary disruption or discomfort in daily activities.

Physical and Mental Health

Refers to the overall state of well-being involving both the body's physical condition and the mind's psychological and emotional state.