Why Should a Risk Averse Manager Select One Project Over

question 98

Multiple Choice

Why should a risk averse manager select one project over another when both projects generate the same NPV?

• A)Because the manager prefers the project which has more variance in its cash flows.
• B)Because the manager prefers the project with the higher IRR.
• C)Because the manager prefers the project with less risky cash flows.
• D)Because the manager prefers the project which has higher standard deviation in its cash flows.

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Definitions:

Product X

A placeholder name typically used in economics and marketing to represent a generic product under consideration.

Resource Allocation

The process of assigning and distributing available resources to various uses in an economy, often in order to maximize efficiency or achieve a desired outcome.

Production Possibilities Curve

A graph that shows the maximum number of possible units a company can produce if it only produces two types of goods given a fixed amount of resources.

Marginal Costs

The extra financial burden of manufacturing another unit of a product or service.