A planned project is predicted to increase shareholder wealth but with an associated increase in the level of risk. What will the shareholders reaction be?
A) They will require a lower discount rate.
B) They will adopt a longer time- frame.
C) They will require a lower performance spread.
D) They will require a higher discount rate.

Question

Quizplus · Accepted Answer

Shareholders generally require a higher return on their investment if the associated risk is higher. Therefore, if a project increases shareholder wealth but with an associated increase in risk, shareholders will require a higher rate of return, which is equivalent to a higher discount rate. Choice D is the only option that reflects this logic.

A Planned Project Is Predicted to Increase Shareholder Wealth but with an Associated