Question

Firms should adjust for execution risk by

		capturing this risk in the expected cash flows generated by the project.
		noticing missteps in the firm's execution of new projects.
		ignoring execution risk since it is diversifiable.
		assigning a higher cost of capital to new projects.

Answer 1

The firms should adjust execution risk by capturing this risk in the expected cash flows generated by the project, this is because when this execution risk is captured you get a more accurate picture of how firms cashflow might look if the risk event occurs and inturns it helps in calculating the risk-adjusted return on investment in the project, so by estimating risk-adjusted return firms can predict with more accuracy whether they should go ahead with the project or not. other options do not seem appropriate in adjusting execution risk.

Hence the answer is A.