Question: You are evaluating two independent projects as to their effect on the total risk and return of your corporation. The projects are expected to result

You are evaluating two independent projects as to their effect on the total risk and return of your corporation. The projects are expected to result in the following:

EXPECTED VALUE OF NET

PRESENT VALUE OF COMPANY

(in millions)

STANDARD DEVIATION

OF NET PRESENT VALUE

(in millions)

Existing projects only

$6.00

$3.00

Plus project 1

7.50

4.50

Plus project 2

8.20

3.50

Plus projects 1 and 2

9.70

4.80

a. In which of the new projects (if any) would you invest? Explain.

b. What would you do if a CAPM approach to the problem suggested a different decision?

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