Question

Ziker Golf Company evaluated a project as a risky project. Ziker generally evaluates projects that are riskier than average by adjusting its required rate of return by 4 percent. If Ziker expects 12% return on average risk projects, then it should expect a return of _____ for a risky project.​

a. ​16%
b. ​12%
c. ​8%
d. ​10%
e. ​48%

Answer 1

Ziker should expect a return of 16% for a risky project, that is, return = 12% + 4% = 16%

Step-by-step explanation:

In this case, we need to calculate risk-adjusted discount rate, which is return on average risk project (12%) plus risk-premium (4%).