A Firm Is Evaluating the Relative Riskiness of Two Capital $\text { Net Present Value }$

question 65

Multiple Choice

A firm is evaluating the relative riskiness of two capital budgeting projects. The following table summarizes the net present values and associated probabilities for various outcomes for the two projects.
$\text { Net Present Value }$

$\begin{array}{rrr}\text { Probability }&\text { Project A }&\text { Project B }\\\hline 0.25 & -\$ 5,000 & 0 \\0.50 & 4,000 & \$ 2,000 \\0.25 & 10,000 & 8,000\end{array}$
-The two projects can best be characterized relative to one another by the statement,13.2)

• A) project A is more risky than project B.
• B) since project A has a higher expected net present value, it should be chosen.
• C) since project B has a higher standard deviation, it is more risky and should not be chosen.
• D) project B is more risky than project A.

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