Projects differ in risk, and risk analysis is a critical component of the capita

Question

Projects differ in risk, and risk analysis is a critical component of the capital budgeting process. Consider the case of United Recycling Inc.: United Recycling Inc. is one of the largest recyclers of glass and paper products in the United States. The company is looking into expanding into the cardboard recycling business. The company's CFO has performed a detailed analysis of the proposed expansion. The company's CFO used sophisticated software to analyze a large number of scenarios and generate estimated rates of return and risk indexes Based on the information given, determine which of the statements is correct. O The company's CFO conducted a sensitivity analysis to evaluate the project's financial model. O The company's CFO used a Monte Carlo simulation to evaluate the project's financial model. Evaluating risk is an important part of the capital budgeting process. Which of the following is measured by the variability of the project's expected returns? O Corporate, or within-firm, risk O Stand-alone risk O Market, or beta, risk When dealing with ,diversification is totally ignored

Explanation / Answer

Question 1:

Option B is correct.
Monte Carlo uses the set of random figures regrading it as inputs. It is employed when the model is non-linear or have more parameters which are not clear.

Question B

Option A
Corporare, or within-firm, risk.

Question C
Stand-alone risk.
It is by the expected return's variability where diversification has no value.

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