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.
Answer: E
You might also like to view...
Self-ful?lling prophecy proposes that negative cultural stereotypes about a group can create for its members a belief in the stereotype. Self-ful?lling prophecy proposes that negative cultural stereotypes about a group can create for its members a belief in the stereotype
Perpetual preferred stock from Franklin Inc. sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC?
A. 8.72% B. 9.08% C. 9.44% D. 9.82% E. 10.22%
The accidental destruction of a negotiable instrument will not result in its cancellation
a. True b. False Indicate whether the statement is true or false
Ethics is the study of how people should act
Indicate whether the statement is true or false