Question
Consider the case of another company. Davis Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected
Consider the case of another company. Davis Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVs of $200,000. 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 projects expected NPVs | $80,000 | $120,000 |
Project beta | 0.9 | 1.1 |
Correlation coefficient of project cash flows (relative to the firms existing projects) | 0.7 | 0.5 |
Which of the following statements about these projects risk is correct? Check all that apply.
Project B has more corporate risk than Project A.
Project B has more stand-alone risk than Project A.
Project A has more market risk than Project B.
Project A has more stand-alone risk than Project B.
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