Chovita Sports Company is evaluating a project that has lower-than-average risk. When evaluating projects that have different risks than its existing assets, Chovita normally adjusts its average required rate of return, which is 12 percent, by 2 percent. What required rate of return should Chovita use to compute the net present value (NPV) of the project it is currently evaluating?
A)14%
B)12%
C)6%
D)10%
E)24%

Question

Quizplus · Accepted Answer

For a project with lower-than-average risk, Chovita adjusts its average required rate of return (12%) by decreasing it by 2%, resulting in a 10% required rate of return for this project.

Chovita Sports Company Is Evaluating a Project That Has Lower-Than-Average