6. Within-firm risk and beta risk Aa Aa Understanding risks that affect projects

Question

6. Within-firm risk and beta risk Aa Aa Understanding risks that affect projects and the impact of risk consideration 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 will accept too many relatively risky projects The firm will become less valuable. The firm will accept too many relatively safe projects. How do managers typically deal with within-firm risk and beta risk when they are evaluating a potential project? O Quantitatively Subjectively

Explanation / Answer

1)It is option A and B since the risk adjusted discount rate is not used they accept most of the projects which are risky and also the stock price of the company will come down because of the risky projects undertaken
2)It is quantitatively
3)It is option C and D,

standard deviation gives stand alone risk and beta gives the market risk

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