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Correlation of the project cash flows with cash flows from currently
existing projects. Cash flows are not correlated with the cash flows from
existing projects. Cash flows are highly correlated with the cash flows
from existing projects.
Which of the following statements is CORRECT?
a. Project X has more stand-alone risk than Project Y.
b. Project X has more corporate (or within-firm) risk than Project Y.
c. Project X has more market risk than Project Y.
d. Project X has the same level of corporate risk as Project Y.
e. Project X has less market risk than Project Y.
3. Which of the following statements is CORRECT?
a. If an asset is sold for less than its book value at the end of a project’s
life, it will generate a loss for the firm, hence its terminal cash flow will
be negative.
b. Only incremental cash flows are relevant in project analysis, the
proper incremental cash flows are the reported accounting profits, and