Why should a risk averse manager select one project over another when both projects generate the same NPV?
A)Because the manager prefers the project which has more variance in its cash flows.
B)Because the manager prefers the project with the higher IRR.
C)Because the manager prefers the project with less risky cash flows.
D)Because the manager prefers the project which has higher standard deviation in its cash flows.

Question

Quizplus · Accepted Answer

A risk averse manager would prefer the project with less risky cash flows, as it reduces the potential for unexpected losses. While both projects may have the same NPV, the manager may be willing to sacrifice a slightly higher return to avoid the possibility of significant losses. Option A and D are not valid considerations as higher variance or standard deviation in cash flows indicate higher risk, which a risk averse manager would seek to avoid. Option B, while commonly used as a decision-making criterion, is not relevant in this case as the NPVs for both projects are the same.

Why Should a Risk Averse Manager Select One Project Over