fari File Edit View History Window Help 1. Project risk versus portfolio risk Consider a firm to be a portfolio of several projects. The referred to as the beta risk of a project. This is different from the total risk involved in a particular project itself. of a project's risk to the firm's risk will be The of a project refers to the risk involved with the success or failure of a project. Consider the following case: Zhong owns a smart phone application development company. The cost involved in developing a new application is around $5,000. Given that there are thousands of mobile phone applications in the market, the probability of an application becoming successful in the market is 16%. However, if it is successful, each app can generate profits up to $50,000. Zhong's company develops more than 10 applications a year and records the entire development cost of the application as a loss if any app is not successful Zhong's company can expect to earn Classifying the 84% failure rate as "high risk" in the industry, this example shows that A project with high project risk may have high beta or systematic risk. O A project with high project risk may not have high beta or systematic risk Zhong is thinking about expanding into the website development business. The website development business has a lower beta than the mobile application development business and is not development business. wWith this expansion, the beta of Zhong's firm is likely to to the mobile application It is important for diversified firms as well as small business owners like Zhong to evaluate their project risk along