Garcia Real Estate is involved in commercial real estate ventures throughout the
ID: 2769342 • Letter: G
Question
Garcia Real Estate is involved in commercial real estate ventures throughout the United States. Some of these ventures are much riskier than other ventures because of market conditions in different regions of the country. If Garcia does not risk-adjust its discount rate for specific ventures properly, which of the following is likely to occur overtime? Check/all that apply. The firm will accept too many relatively safe projects. The firm will accept too many relatively risky projects. The firm will become less 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 (WACC) for its new product 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 market risk than Project B. Project B has more stand-alone risk than Project A.Explanation / Answer
1. option b is correct.
If discount rate is not risk adjusted the firm would select more of risky projects.
2. pure play companies in the new area .
we have to use pure play approach in finding out new Beta of the company.
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