The company’s CFO hired a third-party consulting firm to estimate the cost per ton of processing the cardboard. The consulting firm’s cost estimate for processing the cardboard was significantly higher than what the CFO had been using in his financial model. Based on the information given, determine which of the statements is correct.

a. When the CFO adjusts the cost per ton of processing the cardboard, the project’s NPV will decrease.
b. When the CFO adjusts the cost per ton of processing the cardboard, the project’s NPV will increase.

Evaluating risk is an important part of the capital budgeting process. Which of the following is measured by the variability of the project’s expected returns?

1. Stand-alone risk
2. Market, or beta, risk
3. Corporate, or within-firm, risk

When dealing with , diversification is totally ignored.