Back to Assignment Attempts Average / 3 B. Within-firm risk and beta risk Yatta Net International has manufacturing, distribution, retail, and consulting divisions Projects undertaken by the manufacturing and distribution divisions tend to be low-risk projects, because these divisions are well established and have predictable demand. The company started its retail and consulting divisions within the last year, and it is unknown if these division will be profitable. The company new that opening these new divisions would be risky, but its management believes the divisions have the potential to be extremely profitable under favorabu market conditions If Yatta Net International does not risk-adjust its discount rate for special projects property, which of the following is key to occur over time? Check all that apply The tem will become less risky, The firm will make poor capital budgeting decisions that could jeopardize the long-run viability of the company The firm will reject too many relatively low risk projects, How do managers typically deal with within-firm risk and beta risk when they are evaluating a potential project! Quantitatively Subjectively O Subjectively Consider the case of another company: Davis Printing is evaluating two mutually exclusive projects. They both require a $5 million investment today and hove expected NPVs of $1,000 Management conducted a full risk analysis of these two projects, and the results are shown below. Project A $400,000 0.9 Project B $200,000 Risk Measure Standard deviation of project's expected NPVS Project beta Correlation coefficient of project cash flows (relative to the firm's existing projects) 0.7 0.6 0.4 Which of the following statements about these projects' risk is correct? Check all that apply. Project A has more corporate risk than Project B. Project B has more market risk than Project A. Project A has more market risk than Project B. Project A has more stand-alone risk than Project B. Save & Co 8. Within-firm risk and beta risk Yatta Net International has manufacturing, distribution, retail, and consulting divisions. Projects undertaken by the manufacturing and distribution divisions tend to be low-risk projects, because these divisions are well established and have predictable demand. The company started its retail and consulting divisions within the last year, and it is unknown Ir these divisions will be profitable. The company knew that opening these new divisions would be risky, but its management believes the divisions have the potential to be extremely profitable under favorable market conditions. If Yatta Net International does not risk-adjust its discount rate for specific projects property, which of the following is likely to occur over time? Check all that apply. The firm will become less risky. The firm will make poor capital budgeting decisions that could jeopardize the long-run viability of the company. The firm will reject too many relatively low risk projects. How do managers typically leal with within-firm risk and beta risk when they are evaluating a potential project? Quantitatively Subjectively Consider the case of another company: Clusive ments. They both require a $5 million investment today and have expected NPVS of $1,000,000. Assignment: Chapter 10 Project Cash Flows and Risk Quantitatively Subjectively Consider the case of another company: Davis Printing is evaluating two mutually exclusive projects. They both require a 55 million Investment today and have expected NPVs at 1,000,000 Management conducted a full risk analysis of these two projects, and the results are shown below. Project A $400,000 Risk Measure Standard deviation of project's expected NPVA Project beta Correlation coefficient of project cash flows (relative to the firm's existing projects) Projects $200,000 0.7 0.9 0.6 0.4 Which of the following statements about these projects' risk is correct? Check all that apply. Project A has more corporate risk than Project B. Project B has mong market risk than Project A. Project A has more market risk than Project B. Project A has more stand-alone risk than Project B
