Correlation of the project cash flows with cash flows from, Ask an Expert

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Taussig Technologies is considering two potential projects, X and Y. In evaluating the project's risks, the company estimated the beta of each project versus both the company's other assets and the stock market, and it as well conducted via scenario and simulation analyses. This research produced the given data:

Project X Project Y

Expected NPV $350,000 $350,000

Standard deviation (σ NPV) $100,000 $150,000

Project beta (vs. market) 1.4 0.8

Correlation of the project cash flows with cash flows from presently existing projects. Cash flows are not correlated with the cash flows from the existing projects. Cash flows are highly correlated with the cash flows from the existing projects.

Which of the given statements is accurate?

a. Project X has more stand-alone risk than the Project Y.

b. Project X has more corporate (or within-firm) risk than the Project Y.

c. Project X has more market risk than the Project Y.

d. Project X has the similar level of corporate risk as Project Y.

e. Project X has less market risk than the Project Y.

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Financial Accounting, Accounting

Category:- Financial Accounting
Reference No.:- M915798

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