Business, 07.06.2021 01:00 ariana0517

When a project involves an entirely new product line, the firm may be able to obtain betas from to calculate a weighted average cost of capital (WACC) for its new product line. Consider the case of another company. Davis Printing is evaluating two mutually exclusive projects. They both require a $5 million investment today and have expected NPVs of $1,000,000. Management conducted a full risk analysis of these two projects, and the results are shown below.
Risk Measure Project A Project B
Standard deviation of project's expected NPVs $400,000 $200,000
Project beta 0.9 1.1
Correlation coefficient of project cash flows (relative to the firm's existing projects) 0.7 0.5
Which of the following statements about these projects' risk is correct? Check all that apply. ?
A. Project B has more corporate risk than Project A.
B. Project A has more corporate risk than Project B.
C. Project B has more stand-alone risk than Project A.
D. Project A has more market risk than Project B

Answers: 3

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