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Q: Why are the companies with low cash flow unable to bear the risk of a large project?
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Why would a company like Chevron invest so much capital in a project with so many risks?
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- Why are the companies with low cash flow unable to bear the risk of a large project?“The stand-alone risk of an individual corporate project may be quite high, but viewed in the context of its effect on stockholders’ risk, the project’s true risk may be much lower." How does the correlation between returns on a project and returns on the firm’s other assets affect the project’s risk?What logical arguments might you use to convince your boss to forego the project despite its high rate of return? Is it possible that making investments with expected returns higher than your company’s cost of capital will destroy value? If so, how?
- Companies with low cash flow may be unable to bear the risk of a large project. why?Can you write a short essay about the effects of the risk of investment projects on the capital investment decisions of companies?What is the connection between capital budgeting decisions and the enterprise’s cost of capital? Would an enterprise ever decide to embark on a project whose rate of return would be less than its cost of capital? Why or why not?
- A firm should never undertake an investment if accepting the project would cause an increase in the firm's cost of capital.A firm would accept a project with a net present value of zero because Select one: a. the return on the project would be zero. b. the return on the project would be positive. c. the project would enhance the wealth of the firm's owners. d. the project would maintain the wealth of the firm's owners.Many companies still go ahead to undertake capital projects even when these projects have a negative NPV. Why do you think this is so?