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

question 74

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.
$\text { Net Present Value }$
$\begin{array}{rrr}\text { Probability }&\text { Project A }&\text { Project B }\\0.25 & -\$ 5,000 & 0 \\0.50 & 4,000 & \$ 2,000 \\0.25 & 10,000 & 8,000\end{array}$
-The firm should

• A) choose project B since it has a lower standard deviation.
• B) choose project A since it has a lower relative risk.
• C) choose project B since it has a lower relative risk.
• D) choose project A since it has a higher net present value potential.

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Definitions:

Hiring a Mediator

The act of engaging an impartial third party to facilitate the resolution of a dispute between conflicting parties.

Balance Power

The distribution of power among various parties in a way that no one side has dominance over the others.

Principled Negotiation

A negotiation strategy that focuses on the merits of an issue and seeks mutual gains or objectives rather than positioning.

Firm Flexibility

The ability to be resolute in decision-making while being adaptable to changing circumstances.