Currently,Powell Products Has a Beta of 1

question 48

Multiple Choice

Currently,Powell Products has a beta of 1.0,and its sales and profits are positively correlated with the overall economy.The company estimates that a proposed new project would have a higher standard deviation and coefficient of variation than one of the company's average projects.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 have more stand-alone risk than the firm's typical project.
• B)The proposed new project would increase the firm's corporate 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.

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Definitions:

Exponential Distribution

A probability distribution that represents the interval of time between occurrences in a process where these occurrences happen independently at a steady mean rate and continuously.

Fast Food Restaurant

A dining establishment that offers quick service, convenience, and food served fast, often from a limited menu.

Customers Arrive

The process or event of clients or patrons reaching a service point or facility where they expect to receive a service or product.

Exponential Distribution

A statistical distribution used to model the time between events in a process where events occur continuously and independently at a constant rate.