Risk analysis During Inc. is evaluating a new capital budgeting project and cond

Question

Risk analysis During Inc. is evaluating a new capital budgeting project and conducting some basic risk analysts. First, it calculated the project's NPV at various levels for the project's key inputs: price per unit, variable cost per unit, and the project's WACC. This process is a whose results are graphed below. According to this analysis, which variable is the key value driver for the project? Price per unit Variable cost per unit WACC At the current input value estimates, does this project have a positive or negative NPV? Positive NPV Negative NPV Which type of firm is more likely to base its decisions on stand-alone risk? A small, closely held firm whose owners have much of their wealth tied up in the firm A large, widely held firm whose owners are well diversified and do not have very much of their wealth bed up in the firm

Explanation / Answer

1. WACC

2. Positive NPV

3. A small, closely held firm whose owners have much of their wealth tied up in the firm

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