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2. Taussig Technologies is considering two potential projects, X and Y.
In assessing the projects’ risks, the company estimated the beta of each
project versus both the company’s other assets and the stock market, and
it also conducted thorough scenario and simulation analyses. This
research produced the following data:
Project X
Expected NPV
Project Y
$350,000
Standard deviation (σNPV) $100,000
Project beta (vs. market) 1.4
$350,000
$150,000
0.8
Correlation of the project cash flows with cash flows from currently
existing projects. Cash flows are not correlated with the cash flows from
existing projects. Cash flows are highly correlated with the cash flows
from existing projects.
Which of the following statements is CORRECT?
a. Project X has more stand-alone risk than Project Y.
b. Project X has more corporate (or within-firm) risk than Project Y.
c. Project X has more market risk than Project Y.