1. A firm is considering a new project whose risk is greater than the risk of the firm’s average project, based on all methods for assessing risk. In evaluating this project, it would be reasonable for management to do which of the following?
Increase the cost of capital used to evaluate the project to reflect the project’s higher-than-average risk.
Reject the project, since its acceptance would increase the firm’s risk.
Increase the estimated IRR of the project to reflect its greater risk.
Ignore the risk differential if the project would amount to only a small fraction of the firm’s total assets.
2. Which of the following statements best describes CCA?
The CCA deduction is equal to the year-end UCC for the pool divided by the mandated CCA rate.
Since CCA deduction is not a cash expense, it plays no role in capital budgeting.
The CCA method allows that the net capital cost of an asset is added to the pool in the year the asset is put in use.
The CCA method use a specific mandated CCA rate for each asset class.