Question

QUESTION 6

Speculative risks are symmetrical in the sense that they offer the chance of a gain as well as a loss, while pure risks are those that can only lead to losses.

True

False

QUESTION 7

In theory, reducing the volatility of its cash flows will always increase a company's value.

True

False

QUESTION 8

The basic characteristics of relevant project flows include all of the following except ________.

		cash flows
		incremental flows
		financing flows
		after-tax flows

QUESTION 9

A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm, based on any method for assessing risk.  In evaluating this asset, the decision maker should

		Increase the NPV of the asset to reflect the greater risk
		Reject the asset, since its acceptance would increase the risk of the firm
		Ignore the risk differential if the asset to be accepted would comprise only a small fraction of the total assets of the firm
		Increase the cost of capital used to evaluate the project to reflect the higher risk of the project

Answer 1

6 speculative risks are symmetrical in the sense that they offer the chance of a gain as well as a loss, while pure risks are those that can only lead to losses. This is TRUE

7. In theory, reducing the volatility of its cash flows will always increase a company's value. This is True

8 Option C

9. Cost of capital should be always adjusted with risk of the project so OPTION D is correct- Increase the cost of capital used to evaluate the project to reflect the higher risk of the project