Correlation of the project cash flows

Reference no: EM1357653

Corporation planning 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 numbers:

Expected NPV
Standard deviation (NPV)
Project beta (vs. market)
Correlation of the project cash flows with cash flows from currently existing projects.

Project X
Expected NPV $350,000
Standard deviation (NPV) $100,000
Project beta (vs. market) 1.4

Cash flows are not correlated with the cash flows from existing projects.

Project Y
Expected NPV $350,000
Standard deviation (NPV) $150,000
Project beta (vs. market) 0.8

Cash flows are highly correlated with the cash flows from existing projects.

Which of the following statements is CORRECT?

a. Project X has more stand-alone risk than Project Y.
b. Project X has more corporate (or within-firm)risk than Project Y
c. Project X has more market risk than Project Y.
d. Project X has the same level of corporate risk as Project Y.
e. Project X has less market risk than Project Y.

Reference no: EM1357653

Questions Cloud

Write if statement to display acceptance messag : Write an if statement that displays an acceptance message for an astronaut candidate if the person's weight is between the values of opt_min.

When you arrive at strategy class : A businesses strategic choices are limited by economic conditions. When you arrive at strategy class, you will be asked to perform an environmental analysis.

Productivity and quality problems : Explain the process that Lucy can follow with her staff to address productivity and quality problems.

Ilustrate what is the marginal propensity to consume : Ilustrate what is the marginal propensity to consume (MPC).

Correlation of the project cash flows : Corporation planning two potential projects, X and Y. In assessing the projects' risks, the corporation estimated the beta of each project versus both the company's other assets and the stock market,

Explain and formulate a strategy for negotiating a labor : Explain and Formulate a strategy for negotiating a labor agreement and dealing with potential impasses in the bargaining process.

Depression-common cold of mental health : Some people say that in modern times that depression is the 'common cold' of mental health. What theory of depression do you feel to be the best explanation of depression? Be specific about cause.

Diversity in our work forces is at an all time high : Explain how well do you understand your work team perceptions? Perceptions are our truths based on what we have learned or accepted

Find the mass of the worker : A 550 N physics student stands on a bathroom scale in an elevator. As the elevator starts moving, the scale reads 450N. (a) Find the acceleration of the elevator. Find the mass of the worker.

User Account

All Pages