Project X is very risky and has an NPV of $3 million. Project Y is ver

QUESTION

Project X is very risky and has an NPV of $3 million. Project Y is very safe and has an NPV of $2.5 million. They are mutually exclusive, and project risk has been properly considered in the NPV analyses. Which project should be chosen? Explain.
Project X has NPV of $ 3 Million Risky Project Y has NPV of $ 2.5 Million Less Risky In Valuation of projects risk is adjusted in calculation of NPV which means that project with high risk has higher discount rate and project with lower risk kave lower discount rate. Since risk factor of the project is already considered while¦

ing NPV and project X has higher NPV after adjusting for its risk. This means project X will create more value for the firm and Project X should be chosen since projects are mutually exclusive only one project will be chosen.

ANSWER:

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