Diversified Industries is a multi-product firm operating in a number of industri
ID: 2754153 • Letter: D
Question
Diversified Industries is a multi-product firm operating in a number of industries. Assume the firm is analyzing a new project that has risks unrelated to those of the current firm's product. When computing the net present value of the new project the cash flows should be discounted using:
a rate based on a beta of one since the firm is well diversified.
a rate based on the firm's current beta.
the risk-free rate of return.
the market rate of return.
a rate commensurate with the risk level of the project.
Explanation / Answer
a rate commensurate with the risk level of the project