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1. Project risk versus portfolio risk Consider a firm to be a portfolio of several projects. The contribution of a project's risk to the firm's risk will be referred to as the beta risk of a project. This is different from the total risk involved in a particular project itself. The risk in a project that does not take into account the impact of diversification within a company is referred to as the profect's Consider the following case: Li owns a smart phone application development company. The cost involved in developing a new application is around $10,000. Given that there are thousands of mobile phone applications in the market, the probability of an application becoming successful in the market. is 16%. However, if it is successful, each app can generate profits up to $100,000. L's company develops more than 10 applications a year and records the entire development cost of the application as a loss if any app is not succeasful. U's comoany can expect to earn return. Classifying the 84% failure rate as "high risk" in the industry, this exalnple shows that: A project with high project risk may have high beta or systematic risk, A project with high project risk may not have high beta or systematic risk. U owns a smart phone applicavon devefopment company, The cost involved in developing a new application is around 510,000 . Given that there are thousands of moblle phone applications in the market, the probability of an application becoming successful in the market is 16%. However, if it is successful, each app can generate profits up to $100,000. U's company develops mare than 10 applications a year and records the entire development cost of the application as a loss if afy app is not successful. L's compary con expect to earn. retum. Classifying the 8450 failure rate as "high risk" in the industry, this example shows that: A project with high project risk may have high beta or systematic risk. A project with high project risk may not have high beta or systematic risk. Lis thinking about expanding into the mobile phone accessory retall business. Sales of mobile phone accessories increase when the economy is doing weil and decrease when thare is an economic slowdown. The beta of the retail moblie accessory business is higher than the moblie spolication development butiness, and the businestes are positively correlated. With this expansion, the beta of Us firm is likely to It is important for diversified firms as well as small business owners like L to evaluate their project risk along with their beta risk. There are seviral methods of evaluating project risk. When comparing two projects, when is the standard deviation of a project's cath flows an appropriate measure of project risk? When the two projects have the same project outiay When the two projects have different project outliay Consider a firm to be a portfolio of several projects. The contribution of a project's risk to the firm's risk will be referred to as the beta risk of a project This is different from the total risk involved in a particular project itself. The risk in a project that does not take into account the impact of diversification within a company is referred to as the project's risk. Consider the following case: U owns a smart phone application development company. The cost involved in developing a new application is around $10,000. Given that there are thousands of moblle phone applications in the market, the probability of an application becoming successful in the market is 16%. However, If it is successful, each app can generate profits up to $100,000. U's company develops more than 10 applications a year and records the entire development cost of the application as a loss if any app is not successful. Us company can expect to earn return. Classifying the 84% fallure rate as "high risk" in the industry, this example shows that: A project with high project risk may have high beta or systematic risk. A project with high project nisk may not have high beta or systematic risk, U owns a smart phone application inpany. The cost involved in developing a new application is around $10,000. Given that there are thousands of moblie phone applications in the market, the probability of an application becoming successful in the market is 16%. However, if it is successful, each app can generate profits up to $100,000. Li's company develops mare than 10 applications a year and records the entire development cost of the application as a loss if any app is not successful. U's company can expect to earn. return. Classifying the 84% fallure rate he industry, this example shows that: A project with high p re high beta or systematic risk. A project with high p thave high beta or systematic risk. U is thinking about expanding into the mobile phone accessory retail business. Sales of mobile phone accessorles increase when the economy is doing well and decrease when there is an economic slowdown. The beta of the retail mobile accessory business is higher than the mobile application development business, and the businesses are positively correlated. With this expansion, the beta of L's firm is likely to It is important for diversified firms as well as small business owners like U to evaluate their project risk along with their beta risk. There are several methods of evaluating project risk. When comparing two projects, when is the standard devlation of a project's cash flows an appropriate measure of project risk? When the two projects have the same project outlay When the two projects have different project outlay U is thinking about expanding into the mobile phone accessory retail business. Sales of mobile phone accessories increase when the economy is doing weil and decrease when there is an economic stowdown. The beta of the retall mobile accessory business is higher than the mobile application development business, and the businesses are positively correlated, With this expansion, the beta of U's firm is likely to It is important for diversified firms as well as small business owners like Ll to evaluate their project risk along with their ere are several methods of evaluating project risk. When comparing two projects, when is the standard deviation of a project's cash flor riate measure of project risk? When the two projects have the same project outlay When the two projects have different project outlay 1. Project risk versus portfolio risk Consider a firm to be a portfolio of several projects. The contribution of a project's risk to the firm's risk will be referred to as the beta risk of a project. This is different from the total risk involved in a particular project itself. The risk in a project that does not take into account the impact of diversification within a company is referred to as the profect's Consider the following case: Li owns a smart phone application development company. The cost involved in developing a new application is around $10,000. Given that there are thousands of mobile phone applications in the market, the probability of an application becoming successful in the market. is 16%. However, if it is successful, each app can generate profits up to $100,000. L's company develops more than 10 applications a year and records the entire development cost of the application as a loss if any app is not succeasful. U's comoany can expect to earn return. Classifying the 84% failure rate as "high risk" in the industry, this exalnple shows that: A project with high project risk may have high beta or systematic risk, A project with high project risk may not have high beta or systematic risk. U owns a smart phone applicavon devefopment company, The cost involved in developing a new application is around 510,000 . Given that there are thousands of moblle phone applications in the market, the probability of an application becoming successful in the market is 16%. However, if it is successful, each app can generate profits up to $100,000. U's company develops mare than 10 applications a year and records the entire development cost of the application as a loss if afy app is not successful. L's compary con expect to earn. retum. Classifying the 8450 failure rate as "high risk" in the industry, this example shows that: A project with high project risk may have high beta or systematic risk. A project with high project risk may not have high beta or systematic risk. Lis thinking about expanding into the mobile phone accessory retall business. Sales of mobile phone accessories increase when the economy is doing weil and decrease when thare is an economic slowdown. The beta of the retail moblie accessory business is higher than the moblie spolication development butiness, and the businestes are positively correlated. With this expansion, the beta of Us firm is likely to It is important for diversified firms as well as small business owners like L to evaluate their project risk along with their beta risk. There are seviral methods of evaluating project risk. When comparing two projects, when is the standard deviation of a project's cath flows an appropriate measure of project risk? When the two projects have the same project outiay When the two projects have different project outliay Consider a firm to be a portfolio of several projects. The contribution of a project's risk to the firm's risk will be referred to as the beta risk of a project This is different from the total risk involved in a particular project itself. The risk in a project that does not take into account the impact of diversification within a company is referred to as the project's risk. Consider the following case: U owns a smart phone application development company. The cost involved in developing a new application is around $10,000. Given that there are thousands of moblle phone applications in the market, the probability of an application becoming successful in the market is 16%. However, If it is successful, each app can generate profits up to $100,000. U's company develops more than 10 applications a year and records the entire development cost of the application as a loss if any app is not successful. Us company can expect to earn return. Classifying the 84% fallure rate as "high risk" in the industry, this example shows that: A project with high project risk may have high beta or systematic risk. A project with high project nisk may not have high beta or systematic risk, U owns a smart phone application inpany. The cost involved in developing a new application is around $10,000. Given that there are thousands of moblie phone applications in the market, the probability of an application becoming successful in the market is 16%. However, if it is successful, each app can generate profits up to $100,000. Li's company develops mare than 10 applications a year and records the entire development cost of the application as a loss if any app is not successful. U's company can expect to earn. return. Classifying the 84% fallure rate he industry, this example shows that: A project with high p re high beta or systematic risk. A project with high p thave high beta or systematic risk. U is thinking about expanding into the mobile phone accessory retail business. Sales of mobile phone accessorles increase when the economy is doing well and decrease when there is an economic slowdown. The beta of the retail mobile accessory business is higher than the mobile application development business, and the businesses are positively correlated. With this expansion, the beta of L's firm is likely to It is important for diversified firms as well as small business owners like U to evaluate their project risk along with their beta risk. There are several methods of evaluating project risk. When comparing two projects, when is the standard devlation of a project's cash flows an appropriate measure of project risk? When the two projects have the same project outlay When the two projects have different project outlay U is thinking about expanding into the mobile phone accessory retail business. Sales of mobile phone accessories increase when the economy is doing weil and decrease when there is an economic stowdown. The beta of the retall mobile accessory business is higher than the mobile application development business, and the businesses are positively correlated, With this expansion, the beta of U's firm is likely to It is important for diversified firms as well as small business owners like Ll to evaluate their project risk along with their ere are several methods of evaluating project risk. When comparing two projects, when is the standard deviation of a project's cash flor riate measure of project risk? When the two projects have the same project outlay When the two projects have different project outlay
