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Suppose you are considering one of two projects, whose financial information in four future scenarios is shown below. State Probability Project X Project Y
Suppose you are considering one of two projects, whose financial information in four future scenarios is shown below. State Probability Project X Project Y Market Return Boom 0.25 160 100 25% Mild Growth 0.25 120 120 15% Weak Growth 0.25 100 140 5% Recession 0.25 80 150 -5% However, the projects are incompatible; you can only do one of them. The risk-free rate is 2%. Project X requires an initial investment of 85; Project Y requires an initial investment of 135. If your objective is value maximisation, should you (i) do Project X, (ii) do Project Y, or (iii) do neither project? (Recall that the projects are incompatible; doing both is not an option.) Explain how you reach your conclusion.
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