QUESTION 34 ed Hill Technologies is considering two potential projects, X and Y. In assessing the projects' risks, the company estimated the beta of each project versus both the company's other ssets and the stock market, and it also conducted thorough scenario and simulation analyses. This research produced the following data: Expected NPV Standard deviation (ONPV) Project beta (vs. market) Correlation of the project cash lows with cash flows from urrently existing projects Project X $350,000 $100,000 1.4 Cash flows are not correlated with the cash flows from existing projects Which of the following statements is CORRECT? Project Y $350,000 $150,000 0.8 Cash flows are highly correlated with the cash flows from existing projects
QUESTION 34 ed Hill Technologies is considering two potential projects, X and Y. In assessing the projects' risks, the company estimated the beta of each project versus both the company's other ssets and the stock market, and it also conducted thorough scenario and simulation analyses. This research produced the following data: Expected NPV Standard deviation (ONPV) Project beta (vs. market) Correlation of the project cash lows with cash flows from urrently existing projects Project X $350,000 $100,000 1.4 Cash flows are not correlated with the cash flows from existing projects Which of the following statements is CORRECT? Project Y $350,000 $150,000 0.8 Cash flows are highly correlated with the cash flows from existing projects
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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Transcribed Image Text:QUESTION 34
Red Hill Technologies is considering two potential projects, X and Y. In assessing the projects' risks, the company estimated the beta of each project versus both the company's other
assets and the stock market, and it also conducted thorough scenario and simulation analyses. This research produced the following data:
Expected NPV
Standard deviation (ONPV)
Project beta (vs. market)
Correlation of the project cash
flows with cash flows from
currently existing projects
Project X
$350,000
$100,000
1.4
Cash flows are not correlated
with the cash flows from
existing projects
Which of the following statements is CORRECT?
Project Y
$350,000
$150,000
0.8
Cash flows are highly correlated
with the cash flows from
existing projects
a. Project X has more stand-alone risk than Project Y.
O b. Project X has more corporate (or within-firm) risk than Project Y.
O c. Project X has more market risk than Project Y.
O d. Project X has the same level of corporate risk as Project Y.
O e. Project X has the same market risk as Project Y since its cash flows are not correlated with the cash flows of existing projects.
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