million investment today and have expected NPVs of $600,000. Management conducted a full risk analysis of these two projects, and the results are shown below. Risk Measure Project A Project B Standard deviation of project’s expected NPVs $240,000 $360,000 Project beta 0.9 0.7 Correlation coefficient of project cash flows (relative to the firm’s existing projects) 0.6 0.8 Which of the following statements about these projects’ risk is correct? Check all that apply. Project B has more market risk than Project A. Project A has more market risk than Project B. Project A has more stand-alone risk than Project B. Project B has more stand-alone risk th
million investment today and have expected NPVs of $600,000. Management conducted a full risk analysis of these two projects, and the results are shown below. Risk Measure Project A Project B Standard deviation of project’s expected NPVs $240,000 $360,000 Project beta 0.9 0.7 Correlation coefficient of project cash flows (relative to the firm’s existing projects) 0.6 0.8 Which of the following statements about these projects’ risk is correct? Check all that apply. Project B has more market risk than Project A. Project A has more market risk than Project B. Project A has more stand-alone risk than Project B. Project B has more stand-alone risk th
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider the case of another company. Kim Printing is evaluating two mutually exclusive projects. They both require a $3 million investment today and have expected NPVs of $600,000. Management conducted a full risk analysis of these two projects, and the results are shown below.
|
Risk Measure
|
Project A
|
Project B
|
|---|---|---|
| Standard deviation of project’s expected NPVs | $240,000 | $360,000 |
| Project beta | 0.9 | 0.7 |
| Correlation coefficient of project cash flows (relative to the firm’s existing projects) | 0.6 | 0.8 |
Which of the following statements about these projects’ risk is correct? Check all that apply.
Project B has more market risk than Project A.
Project A has more market risk than Project B.
Project A has more stand-alone risk than Project B.
Project B has more stand-alone risk than Project A.
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