What the decision maker should

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Question 1: A firm is considering the purchase of an asset whose stand-alone risk is greater than the average risk of its existing portfolio of assets. In evaluating this asset, the decision maker should:

Option 1: increase the internal rate of return (IRR) used to evaluate the asset to reflect its higher risk.

Option 2: increase the asset's net present value (NPV) to reflect its higher risk.

Option 3: reject the asset because its acceptance would clearly decrease the value of the firm.

Option 4: ignore the asset's higher risk if, after purchase, it will make up only a small fraction of the firm's total assets.

Option 5: increase the required rate of return that is used to evaluate the asset to reflect its higher risk.

Reference no: EM132577845

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