Chapter 12, Problem 7Q

Summary Introduction

To identify: The difference among beta risk, within-firm risk and stand-alone risk of a project.

Introduction:

Beta Risk:

Beta risk is a systematic risk that can be reduced through a diversified portfolio or investment projects. It is based on the market related and known as market risk.

Within-firm Risk:

The firm or project specific risk is known as within-firm risk. It is based on the project and assumes that a particular project is the only investment. Hence, the risk associated with it cannot be diversified for the corporation.

Stand-alone Risk:

Stand-alone risk is based on the assumption that only one project is available with the company and the single stock is available for the investors. Therefore, the stand-alone risk cannot be diversified.