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Understanding risks that affect projects and the impact of risk consideration 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 over time? Check all that apply The firm could potentially reject projects that provide a higher rate of return than the company should require The firm will increase in value The firm's overall risk level will increase When a project involves an entirely new product line, the firm may be able to obtain betas from pure-play companies in the new areato calculate a weighted average cost of capital (WACC) for its new product pure-play companies in the new area the firm's previous projects Consider the case of another company. Davis Printing is evaluating two mutually exclusive projects. They both require a $1 milion investment today and have expected NPVs of $200,000. Management conducted a full risk analysis of these two projects, and the results are shown below Risk Measure Standard deviation of project's expected NPVs Project beta Correlation coefficient of project cash flows (relative to the firm's existing projects) Project A Project B $80,000 $40,000 0.7 0.5 Which of the following statements about these projects' risk is correct? Check all that apply Project A has more market risk than Project B Project A has more corporate risk than Project B Project B has more stand-alone risk than Project A. Project A has more stand-alone risk than Project B

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