Bill and Mary own a small chain of high fashion boutiques that represent almost 100% of their net worth.When considering capital budgeting projects for their boutiques,the appropriate measure of risk is

Question

Quizplus · Accepted Answer

Since Bill and Mary's net worth is almost entirely invested in their boutiques, the appropriate measure of risk is contribution-to-firm risk, which considers the impact of a project on the overall risk of the entire company. Options A and D are incorrect because they only consider the risk of the project itself, while option B (systematic risk) is more appropriate for diversified portfolios and not relevant for a company that represents a large proportion of an individual's net worth.

Bill and Mary Own a Small Chain of High Fashion