Project Alpha Has an NPV of $10 Million and a Standard

question 112

Multiple Choice

Project Alpha has an NPV of $10 million and a standard deviation based on risk analysis of $3 million. Project Beta has an NPV of $8 million and a standard deviation based on risk of $2 million. Which project should be selected and why?

• A)Select Alpha because it has the higher NPV.
• B)Select Beta because it has the lower risk as represented by standard deviation.
• C)Select either project because both have positive NPVs and relatively low risk compared to their NPVs.
• D)Don't select either project because there is too much risk associated with both projects.
• E)There is no clear decision rule, the choice depends on management's degree of risk aversion.

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Definitions:

Innovation Process

A systematic approach that involves the generation, development, and implementation of new ideas, leading to valuable products, services, or business processes.

Top Managers

Individuals who hold the highest level of management in an organization, responsible for setting policies, strategies, and goals.

Reverse Innovation

Innovation that comes from lower organizational levels and is found in diverse settings or locations.

Global Firms

Companies that operate and offer products or services in multiple countries across the world, transcending national boundaries.