When evaluating two projects with different risk levels, one way to account, for

Question

When evaluating two projects with different risk levels, one way to account, for this is to: use a lower discount rate for the riskier project use a higher discount rate for the riskier project. require a longer payback period for the riskier project require a longer payback period for the safer project Relaxed credit standards lead to: increased sales and accounts receivable decreased sales and accounts receivable increased sales and decreased accounts receivable decreased sales and increased accounts receivable Generally an increase in current assets relative to total assets: decreases returns and risk increases returns and risk. increases returns and decreases risk has no effect on return or risk

Explanation / Answer

46.

Investors usually will want a higher rate of return when the risk level is more for a project. Therefore, one has to use a larger discount rate for a project with greater risk level.

47.

When credit standards are relaxed, people will be more likely to buy from that vendor or company giving rise to greater sales. But the amount of accounts receivables will also go up due to larger number of debtors or higher amount of debt.

48.

When current assets are increased in relation to total assets, then the possibility of returns decreases since current assets are considered to be less profitable in comparison to fixed assets. Also in that situation the risk (especially the risk of technical insolvency) is reduced due to increase in liquidity.

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