Question

A company is considering two mutually exclusive projects for adoption. Given are the projected returns on investment for 5 years. Which of the two is more risky?

Year	1	2	3	4	5
Project X	10	5	20	40	60
Project Y	5	25	45	30	30

Answer 1

Since no parameters to calculate npv, IRR and payback period are given,

The more risk project can be said as which have brings the cash flows after a longer period of time; Here total combined cash flows of both the project are 135 $ , but project X brings the larger part of cash flows towards the end whereas project Y , the cash flows are evenly distributed.

Due to this Project X is more riskier than project Y, since higher the time it takes to bring majority of cash flows, the more riskier the project.