Question

If the returns from Projects A, B, and C had strong negative correlation with the normal expected earnings of most firms in the economy would this affect your estimates of expected NPV?

Would you still consider the most risky project you answered in Question 1 to be the riskiest project? How would it affect the overall riskiness of the firm? The overall cost-of-capital?

Answered in Question 1

	Expected Cash Outflow	Standard Deviation of Cash Outflow	Expected Cash Inflow	Standard Deviation of Cash Inflow
Project A	$ 50,000,000	$                             -	$               10,092,800	$       1,633,842
Project B	$ 40,000,000	$               4,768,874	$               11,877,450	$       3,842,368
Project C	$ 40,000,000	$               7,393,765	$               13,816,550	$       7,728,887

Project A

Project B

Project C

Cost of Capital	20%
NPV	($16,436,291.50)	($501,419.87)	$5,947,076.80

Answer 1

the question is related to riskiness of projects.