Dandy Product's overall weighted average required rate of return is 10 percent. Its yogurt division is riskier than average, its fresh produce division has average risk, and its institutional foods division has below-average risk. Dandy adjusts for both divisional and project risk by adding or subtracting 2 percentage points. Thus, the maximum adjustment is 4 percentage points. What is the risk-adjusted required rate of return for a low-risk project in the yogurt division?

Question

Quizplus · Accepted Answer

The risk-adjusted required rate of return for a low-risk project in the yogurt division is 10%. This is because the yogurt division is riskier than average, so the required rate of return is adjusted upward by 2 percentage points. The maximum adjustment is 4 percentage points, so the risk-adjusted required rate of return for a high-risk project in the yogurt division would be 14%.

Dandy Product's Overall Weighted Average Required Rate of Return Is