Alternative a and Alternative B Have the Same ENPV

question 37

Multiple Choice

Alternative A and Alternative B have the same ENPV. When graphing possible results from the alternative projects, Alternative A has fewer values clustered around the ENPV and has a greater number of lower and higher possible values than Alternative B. What can be concluded when comparing Alternative A to Alternative B?

• A) A is not as risky as B because its value distribution indicates a higher upside probability.
• B) A is not as risky as B because its value distribution indicates lower overall variability.
• C) A is riskier than B because its value distribution indicates a lower overall variability.
• D) A is not as risky as B because its values are more equally spread over the entire value range.
• E) A is riskier than b because its value distribution indicates a higher downside probability.

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Definitions:

Expected Rate of Return

The profit or loss one anticipates on an investment relative to the original investment amount.

Total Investment

The sum of all financial resources allocated towards a particular investment, project, or portfolio.

Price of Capital

The cost of using capital to produce goods or services, often represented by the interest rate on borrowed funds or the opportunity cost of using one's own funds.

Future Profits

Expected earnings or gains in the future, often incorporating risk and uncertainty predictions.