Project Alpha has an NPV of $10 million and a standard deviation based on risk analysis of $3 million. Project Beta has an NPV of $8 million and a standard deviation based on risk of $2 million. Which project should be selected and why?
A)Select Alpha because it has the higher NPV.
B)Select Beta because it has the lower risk as represented by standard deviation.
C)Select either project because both have positive NPVs and relatively low risk compared to their NPVs.
D)Don't select either project because there is too much risk associated with both projects.
E)There is no clear decision rule, the choice depends on management's degree of risk aversion.

Question

Quizplus · Accepted Answer

The choice between Project Alpha and Project Beta depends on management's risk tolerance. Alpha has a higher NPV but also higher risk, while Beta has a lower NPV but also lower risk. There's no absolute rule without considering the organization's risk preferences.

Project Alpha Has an NPV of $10 Million and a Standard