Question

6. Within-firm risk and beta risk Understanding risks that affect projects and the impact of risk consideration 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 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. The firm will accept too many relatively safe projects. The firm will accept too many relatively risky projects. The firm will become less valuable. When a project involves an entirely new product line, the firm may be able to obtain betas from calculate a weighted average cost of capital (WACC) for its new product line. Consider the case of another company. Davis 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. Project $240,000 Project B $360,000 Risk Measure Standard deviation of project's expected NPVS Project beta Correlation coefficient of project cash flows (relative to the firm's existing projects)

Answer 1

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wsp- Microsoft Word (Product Activation Failed) ? Page Layout File Home Insert References Mailings Review View Find A Cut E T A A Aa AаВЬСcl AaаВЬСcl AaBbС АавЬСс АаВ AаBЬСс. АаВЬСсD Arial 10 Copy aReplace Paste в IU abe X, х* 1 No Spaci... Subtle Em.. Change T Normal Heading Heading 2 Title Subtitle Format Painter Select Styles Paragraph Clipboard Font Styles Editing 2 11 d I1 I: 2 3 4 I 5 6 I:7 18 9 10 : 11 | 12 13 14 15 17 : 18 CHECK ALL THAT APPLY THE FIRM WILL ACCEPT TO0 MANY RELATIVELY RISKY PROJECTS. THE FIRM WILL BECOME LESS VALUABLE. FILL IN THE BLANK : pure play companies in new area CHECK ALL THAT APPLY Project B has more market risk than Project A. Project B has more corporate risk than Project A. Standard deviation measures stand alone risk. So project B has more standalone risk then project A. higher for Project B. measures corporate risk. So Project B has HIGHER corporate risk than Project A. Beta of Project B is higher than Project A. Beta measures market risk, So it is Project B has higher correlation coefficient than Project A which ds: 1,214 (-. Pag English (India) 130% W 04:56 ENG 23-11-2019 IIZ EI I SI91 I81 6 1OT TII