Question

mu WSP Inc. is involved in a wide range of unrelated projects. The company will pursue any project that it thinks will create value for its stockholders. Consequently, the risk level of the company's projects tends to vary a great deal from project to project. for special IF WSP Inc. does not risk-adjust its discount rate for specific projects properly, which of the following is likely to occur over time? Check all that apply. operty, which of ti The firm will become less valuable. The firm will accept too many relatively risky projects. The firm will accept too many relatively safe projects. When a project involves an entirely new product line, the firm may be able to obtain betas from to calculate a weighted average cost of capital (WACC) for its new product pure-play companies in the new area the firm's previous projects Consider the case of another company. Chrome Printing is evaluating two mutually exclusive projects. They both require a $3 million investment today and have expected NPVs of $600,000. Management conducted a full risk analysis of these two projects, and the results are shown below. Risk Measure Standard deviation of project's expected NPVS Project beta Correlation coefficient of project cash flows (relative to the firm's existing projects) Project A Project B $240,000 $360,000 1.2 0.7 0.5 Which of the following statements about these projects' risk is correct? Check all that apply. Project B has more corporate risk than Project A. Project A has more corporate risk than Project B. Project A has more stand-alone risk than Project B. Project B has more market risk than Project A.

Answer 1

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- O W 2017 File Home Insert wsp - Microsoft Word (Product Activation Failed) View Page Layout References Mailings Review Cut T Ea Copy Paste Format Painter Clipboard АаВЬСcІ АавьСcІ АаВЫС. Аавьсс АаВ Аавьсс. Аавьсср 1 Normal 1 No Spac... Heading 1 Heading 2 Title Subtitle Subtle Em... Arial - 10 - A A Aa A 5-15- BI Uabe X, X Aab-A ETT Font Paragraph 1:2:1!1!1! 1!1!1!1!1!3!1! 4'1'5 Change Styles Find ac Replace hos Select Editing Styles | 13 1 .6:1:7:1:8:1 9 : 1:10 | 11 | 12 | 14 | 15:1 :1:17 | ' 18 ' ' ' C ' CHECK ALL THAT APPLY : THE FIRM WILL BECOME LESS VALUABLE. THE FIRM WILL ACCEPT TOO MANY RELATIVELY RISKY PROJECTS. ' E ! ! FILL IN THE BLANK : pure play companies in new area ! . S CHECK ALL THAT APPLY : ' 9 Project A has more corporate risk than Project B. Project B has more market risk than Project A. :1 8 . 1 Standard deviation measures stand alone risk. So project B has more standalone risk then project A. Beta of Project B is higher than Project A. Beta measures market risk, So it is higher for Project B. Project A has higher correlation coefficient than Project B which measures corporate risk. So Project A has HIGHER corporate risk than Project B. 6 : 1 :01: ' I ' I Pag bis: 1,214 English (India) E DE 2 E 130% ... 07:40 * * ENG 25-11-2019