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Tauch Technologies is considering two potential projects, X and Y. In assessing the projects' risks, the company estimated the beta of each project versus both
Tauch 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:
Project X | Project Y | |
---|---|---|
Expected NPV | $350,000 | $350,000 |
Standard deviation (NPV) | $150,000 | $100,000 |
Project beta (vs. market) | 0.8 | 1.4 |
Correlation of the project cash flows with cash flows from currently existing projects | Cash flows are not correlated with the cash flows from existing projects | Cash flows are highly correlated with the cash flows from existing projects |
Explain the type of risk that the projects face. Does one project have more risk than the other? Show your calculations, if any, and explain your answer.
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