Novo Technica (NT) is a technology manufacturing company. Union Manufacturing (UM), another manufacturing company, has approached NT with a proposal. NT and UM will jointly finance a project to produce and market a new smart electricity meter. The project would require an investment of 10,000,000 each from both NT and UM. NT has considered the proposal and based on forecasted demand for the product has estimated that its 10,000,000 investment would generate a negative Net Present Value of (500,000). On this basis, NT has declined to invest. UM is very confident about the project however and has offered to buy out NTs stake in the project after 3 years for 6,800,000 should NT wish to exit the investment. Volatility (standard deviation) in returns from technology manufacturing is estimated at 30% per year. The risk-free rate of return is 1.5%. NT is now considering this revised proposal.

(iii) There was significant disagreement amongst the financial analysts in NT about the volatility of returns from technology manufacturing. Some analysts argued that volatility is significantly lower than 30%. Briefly comment on the implications for the investment if these analysts are correct. Calculations are not required for your answer.