4. a. The coefficients of variation (standard deviation/NPV) for the alternatives are Existing projects .50 Plus project

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4.

a. The coefficients of variation (standard deviation/NPV) for the alternatives are Existing projects .50 Plus project 1 .60 Plus project 2 .61 Plus projects 1 and 2 .63 The cdcient of variation increases with either or both investments. A reasonably risk-averse decision maker will prefer the existing projects to any combination of new project additions to existing projects. If this is the case, both new projects will be rejected. The actual decision will depend on your risk preferences. hsumably, these preferences will be influenced by the presence of bankruptcy costs.

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