In the previous problem you found the benefit from delaying an investment decision. Now use the same data to calculate the effect the delay will have on the project's risk: By how much will delaying to obtain more information reduce the project's coefficient of variation? (Hint: Use the expected NPV as found in Problem 40.)
A) 6.31
B) 6.94
C) 7.63
D) 8.39
E) 9.23

Question

Quizplus · Accepted Answer

The correct answer is A because the coefficient of variation is a measure of risk, and a lower coefficient of variation indicates less risk. By delaying the investment decision, the company can obtain more information about the project, which will reduce the uncertainty and therefore the risk.

In the Previous Problem You Found the Benefit from Delaying