The stand-alone risk of a project is measured by:
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A. B. C. D.C
Standalone risk evaluates the risk of a project ignoring all portfolio aspects by looking at the variability of the project's projected returns.
The stand-alone risk of a project refers to the risk associated with the project itself, independent of other investments or activities of the firm. It measures the variability or uncertainty of the project's returns.
Option A suggests that the stand-alone risk of a project is measured by its impact on the systematic risk of the firm's stock. Systematic risk is the risk that cannot be diversified away and is associated with the overall market or economy. While the project's impact on the firm's stock may be relevant for assessing the risk of the stock, it is not a direct measure of the project's stand-alone risk.
Option B states that the stand-alone risk of a project is measured by its impact on the unsystematic risk of the firm's stock. Unsystematic risk, also known as specific risk or diversifiable risk, is the risk that can be reduced through diversification. However, the stand-alone risk of a project focuses specifically on the project itself, rather than its impact on the stock's unsystematic risk. Therefore, option B is not an accurate measure of stand-alone risk.
Option C correctly identifies the variability of the project's projected returns as a measure of stand-alone risk. The greater the variability or dispersion of the projected returns, the higher the stand-alone risk of the project. This measure assesses the uncertainty surrounding the potential outcomes of the project.
Option D suggests that the stand-alone risk of a project is measured by its impact on the uncertainty about the firm's future earnings. While the uncertainty about future earnings is relevant in evaluating the overall risk of a firm, it does not specifically capture the stand-alone risk of a project.
In conclusion, the correct answer is C. The stand-alone risk of a project is measured by the variability of the project's projected returns. This measure assesses the uncertainty or variability of the potential outcomes of the project, providing insights into its standalone risk profile.