You are evaluating two independent projects as to their effect on the total risk and return of your corporation. The projects are expected to result in the following:

EXPECTED VALUE OF NET

PRESENT VALUE OF COMPANY

(in millions)

STANDARD DEVIATION

OF NET PRESENT VALUE

(in millions)

Existing projects only

$6.00

$3.00

Plus project 1

7.50

4.50

Plus project 2

8.20

3.50

Plus projects 1 and 2

9.70

4.80

a. In which of the new projects (if any) would you invest? Explain.

b. What would you do if a CAPM approach to the problem suggested a different decision?