6. More risk analysis Aa Aa Guttenburg Printing is evaluating two mutually exclu

Question

6. More risk analysis Aa Aa Guttenburg Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVs of $200,000. A full risk analysis has been performed of these two projects, and the results are shown below. Risk Measure Project A Project B Standard Deviation of Expected Project NPWs $80,000 $130,000 0.7 Project Beta 1.2 Correlation Coefficient of Project Cash Flows 0.15 0.80 (relative to the firm's existing projects) Which of the following statements about these projects' risk is correct? Check all that apply. O Project A has more corporate risk than Project B. O Project A has more market risk than Project B. O Project A has more stand-alone risk than Project B.

Explanation / Answer

The second option is correct :

Project A has more market risk than Project B

It is due to the fact that it has a higher beta. The higher the beta, the higher the market risk as far as investment is concerned.

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