Financial Impact of Risk in Projects

As risk increases, the investment becomes more attractive due to the potential for higher returns.

Risk has no impact on the attractiveness of an investment.

As risk increases, the investment becomes less attractive due to heightened uncertainty and potential for loss. (correct)

The relationship between risk and investment attractiveness depends on the investor's risk tolerance.

Higher risk leads to a higher NPV as investors expect higher returns.

Higher risk may lead to either a higher or lower NPV, depending on the specific project.

Higher risk leads to a lower NPV as future cash flows become less certain and subject to higher discount rates. (correct)

Higher risk has no impact on the NPV.

The cost of capital increases as investors demand higher returns to compensate for increased risk. (correct)

The effect of risk on the cost of capital depends on the specific industry.

The cost of capital decreases as investors demand lower returns for higher risk.

The cost of capital remains unchanged, regardless of the level of risk.

<p>The discount rate increases to reflect the heightened uncertainty and potential volatility.</p> Signup and view all the answers

<p>Higher risk leads to a lower NPV, higher cost of capital, and higher discount rate.</p> Signup and view all the answers