Suppose a firm considers adopting a project X that expands the firm's payoffs from H to...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose a firm considers adopting a project X that expands the firm's payoffs from H to H+ X. If Cov[H, X] < 0, we may say that project X diversifies some of the risk that is inherent in the firm's existing operations. Does the diversifying impact of the expansion make the project more attractive to the firm? (We assume perfect capital markets without distortions.) Suppose a firm considers adopting a project X that expands the firm's payoffs from H to H+ X. If Cov[H, X] < 0, we may say that project X diversifies some of the risk that is inherent in the firm's existing operations. Does the diversifying impact of the expansion make the project more attractive to the firm? (We assume perfect capital markets without distortions.)
Expert Answer:
Answer rating: 100% (QA)
Yes the diversifying impact of the expansion makes project X more attractive to the firm When CovH X ... View the full answer
Related Book For
Vector Mechanics for Engineers Statics and Dynamics
ISBN: 978-0073398242
11th edition
Authors: Ferdinand Beer, E. Russell Johnston Jr., David Mazurek, Phillip Cornwell, Brian Self
Posted Date:
Students also viewed these finance questions
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Googles ease of use and superior search results have propelled the search engine to its num- ber one status, ousting the early dominance of competitors such as WebCrawler and Infos- eek. Even later...
-
Which of these situations would require auditors to append an emphasis- of- matter paragraph about consistency to an otherwise unmodified opinion? a. Entity changed its estimated allowance for...
-
Nadal Inc. has two temporary differences at the end of 2008. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadals accounting...
-
Concerning Apple Inc. as an example In this milestone, Provide an overview consisting of a brief description of the chosen company, your chosen product or service, and annual sales. Describe three...
-
Why does the earned income tax credit increase the labor force participation rate of targeted groups?
-
Kirkland Plumbing Company is a newly formed company specializing in plumbing services for home and business. The owner, Lenny Kirkland, had divided the company into two segments: Home Plumbing...
-
Matlakala is employed by SnownDeep Inc, as an HR Trainee. She has been medically diagnosed with severe anxiety disorder which sometimes induces temporary paralysis in the event that she suffers a...
-
Draw a normal curve and identify the approximate location of the following scores. (a) You have the most frequent score. (b) You have a low-frequency score, but the score is higher than most. (c) You...
-
When and why should liabilities for each of the following items be recorded on the books of an ordinary business corporation? Purchase of goods on account. Upon recieving the goodsOfficers salaries...
-
In Problems 20-52: a. State the type; and \(\mathbf{b}\). Answer the question. Certain Concrete Company deposits \(\$ 4,000\) at the end of each quarter into an account paying \(10 \%\) interest...
-
If a car with a cash price of \(\$ 11,450\) is offered for nothing down with 48 monthly payments of \(\$ 353.04\), what is the APR?
-
Use a calculator to evaluate the amortization formula \[m=\frac{P\left(\frac{r}{n}ight)}{1-\left(1+\frac{r}{n}ight)^{-n t}}\] for the values of the variables \(P, r\), and \(t\) (respectively) given...
-
In Problems 20-52: a. State the type; and \(\mathbf{b}\). Answer the question. A 5-year term insurance policy has an annual premium of \(\$ 300\), and at the end of 5 years, all payments and interest...
-
Boats often relay messages by using flags. How many messages can be made using five flags out of a package of 40 different flags?
-
An accelerated growth of invasive algae is threatening a vast marine area of 5,000 square kilometers. An estimated 8 million corals are at risk, and it is forecasted that all susceptible corals will...
-
The relationship described in question 7 does not always appear to hold. What factors, besides the number of firms in the market, might affect margins?
-
A homogeneous hemisphere of radius r is placed on an incline as shown. Assuming that friction is sufficient to prevent slipping between the hemisphere and the incline, determine (a) the largest angle...
-
Determine the moment about the origin O of the force F = 4i 3j + 5k that acts at a Point A. Assume that the position vector of A is (a) r = 2i + 3j 4k, (b) r = 8i + 6j 10k, (c) r = 8i 6j + 5k.
-
A thin, homogeneous wire is bent to form the perimeter of the figure indicated. Locate the center of gravity of the wire figure thus formed.
-
Mr. Smith wants to buy a car and is deciding between brands A and B. Car A costs \(\$ 20,000\), and Mr. Smith estimates that at the rate he drives he will sell it after 2 years and buy another of the...
-
Consider a continuous-time environment, with \(e\) as a variable outside of the market. (a) Suppose the final payoff is \(V\left(x_{e}, T ight)=x_{e}(T)\). Find \(V\left(x_{e}, t ight)\). (b) Find a...
-
Mr. Jones was considering a new grapefruit venture that would generate a random sequence of yearly cash flows. He asked his son. Gavin, "People tell me I should use a cost of capital figure to...
Study smarter with the SolutionInn App