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 te discount rate for pacific project property, which of the following is likely to occur over time! Check all that apply The firm will increase in value. The firm could potentially reject projects that provide a higher rate of retum than the company should require The firm's overatrisk level will increase stand- Generally, a positive correlation exists between project's returns and the returns on the firm other sets. If the correlation is alone risk will be a good proxy for within firm risk. 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 Projects $360,000 Risk Measure Standard deviation of project's expected NPVS Project beta Correlation coefficient of project cash nowe relative to the firm's existing projects) 0.9 1.1 0.9 0.7 Which of the following statements about these projects' risk is correct? Check all that apply. Project A has more market risk than Project B. Project B has more stand-alone risk than Project A. Project Bhas more market risk than Project A Project A has more corporate risk than Project B. TO 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 property, which of the following is likely to occur over time? Check all the apply The firm will increase in value. The firm could potentially reject projects that provide a higher rate of return than the company should require The firm's overall risk level will increase. Generally, a positive correlation exists between a project's returns and the returna on the firm's other assets. If this correlation is alone risk will be a good proxy for within-firm riek stand Consider the case of another company Davis Printing in evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPV of $600,000 Management conducted a full risk analysis of these two projects, and the results are shown below. Project 6 $360,000 Risk Measure Standard deviation of project's expected NPV Project beta Correlation coefficient of project cash flows (relative to the firm's exciting projects) Project $240,000 0.9 0.7 0.9 Which of the following statements about these projects risk is correct? Check all that apply Project A has more market risk than Project B. Project has more stand-nione risk than Project A L Project has more market risk than Project A. 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 property, which of the following is likely to occur over time? Check all that apply. The firm will increase in value. The firm could potentially reject projects that provide a higher rate of return than the company should require. The firm's overall risk level will increase. stand- Generally, a positive correlation exists between a project's returns and the returns on the firm's other assets. If this correlation is alone risk will be a good proxy for within-firm riski 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. 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 $240,000 0.9 Project B $360,000 1.1 0.7 0.9 Which of the following statements about these projects' risk is correct? Check all that apply. Project A has more market risk than Project B. Project B has more stand-alone risk than Project A. Project B has more market risk than Project A. Project A has more corporate risk than Project B
