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$$s overall risk level will increase.

The firm could potentially reject projects that provide a higher rate of return than the company requires.

The firm will become more valuable.

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 for its new product line.

Consider the case of another company:

Chrome Printing is evaluating two mutually exclusive projects. They both require a $$1$ million investment today and have expected NPVs of $$200,000.$ Management conducted a full risk analysis of these two projects, and the results are shown below.

Risk Measure

Project A

Project B

Standard deviation of project$$s expected NPVs $$80,000$ $$120,000$

Project beta $0\mathrm{.}91\mathrm{.}1$

Correlation coefficient of project cash flows $($relative to the firm$$s existing projects$)0\mathrm{.}70\mathrm{.}9$

Which of the following statements about these projects$$ risk is correct? Check all that apply.

Project B has more stand$-$alone risk than Project A$.$

Project B has more market risk than Project A$.$

Project A has more stand$-$alone risk than Project B$.$

Project B has more corporate risk than Project A$.$