The company started its retail and consulting divisions within the last year, an
ID: 2739845 • Letter: T
Question
The company started its retail and consulting divisions within the last year, and it is unknown if 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. The company is currently using its WACC to evaluate new projects for all divisions. If Yatta Net International 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 could potentially reject projects that provide a higher rate of return than the company should require. The firm's overall risk level will increase. The firm will increase in value. 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 (WACC) for its new product line. Consider the case of another company. Turnkey 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. Which of the following statements about these projects' risk is correct? Check all that apply. Project B has more market risk than Project A. Project B has more corporate risk than Project A. Project A has more corporate risk than Project B. Project B has more stand-alone risk than Project A.Explanation / Answer
Q. If yatta Net International does not risk- adjust its discount rate for specific projects properly, following is likely to occur over time
A. The firm could potentially reject projects that provide a higher rate of return than the company should require.
Q. which of the following statements about these projects risk is correct
A. Project B as more corporate risk than project A