Question: FP2: There is a direct relationship between risk and return; as perceived risk increases, required return will also increase (and vice versa), holding other things

  • FP2: There is a direct relationship between risk and return; as perceived risk increases, required return will also increase (and vice versa), holding other things constant.
  • PR2: The timing of the cash flows of an asset is important; sooner is better (later cash flows are more heavily discounted, reducing their present value).

1. The marketing manager at your firm shows you an analysis he performed of a new production process that he believes will reduce production costs and show a slight profit after taking into account the cost of operating the new technology. While the marketing manager believes the project is of average risk, you believe the new technology is riskier than the projects the firm normally invests in. How will this affect your evaluation of the new technology?

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