(Solved) Taussig Technologies is considering two potential projects, X and Y. In assessing the projects ...

Taussig 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 numbers:


		Project X	Project Y
	Expected NPV	$460,000	$460,000
	Standard deviation (_NPV)	$130,000	$170,000
	Project beta (versus market)	1.5	0.9
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 highlycorrelated with the cash flows from existing projects.

Which of the following statements is correct?

$350,000

$150,000

$350,000

Correlation of the project cash flows with cash flows from currently existing projects.

▸

Project Y has less stand-alone risk than Project X.

▸

Project Y has less corporate (or within-firm) risk than Project X.

▸

Project Y has the same level of corporate risk as Project X.

▸

Project Y has less market risk than Project X.

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Taussig Technologies is considering two potential projects, X and Y. In assessing the projects ...

Financial Management: Theory and Practice

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