The project's cash flows are likely to be positively correlated with returns on the firm's other projects and wthe economy. The firm is involved with materials and caulking compound is a building material, so it is a siproduct to the firm's other products. In addition, when the economy is booming, housing starts increase--wwould mean an increase in sales of the caulking compound. Whether a project is positively or negativelycorrelated with the firm's other projects impacts the risk of the project and the relevant cost of capital at whit should be evaluated.