Question

If corporate managers are risk-averse, does this mean they will not take risks? Describe how uncertainty is calculated into cash flows. As a corporate financial manager, would you prefer a low-risk, low-return project or a high-risk, high-return project, and why? This is not a question about what you would do as an individual but instead what you would do as a manager at a for-profit company.

Answer 1

Here, risk averse means to take low risk rather than to go for higher ones. This doesn't mean that manager will not take any risk. Manager is required to take risk not higher but at least lower ones which will benefit to the company.

As a manager, it is necessary to study in depth projects with every options available either low risk low return or high risk high return project.

Firstly, manager should consider current situation, financial position and other related informations of the company for decision making. Manager should evaluate low risk project and high risk project and accordingly beneficial project should be selected for the company.