A medical group practice is considering offering a new service with risk that is

Question

A medical group practice is considering offering a new service with risk that is greater than the current risk of the business. In evaluating this investment, the decision maker should

a. increase the internal rate of return of the project to reflect the greater risk.

b. increase the net present value of the project to reflect the greater risk.

c. reject the project, because its acceptance would increase the risk of the business.

d. ignore the risk differential if the project represents only a small fraction of the total assets of the business. e. increase the cost of capital applied to the project to make it greater than the business’s corporate cost of capital.

Explanation / Answer

increase the cost of capital applied to the project to make it greater than the business’s corporate cost of capital

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