Question

Abrosz Inc. is considering two projects, A and B. In assessing the projects’ risks, the company...

Abrosz Inc. is considering two projects, A and B. In assessing the projects’ risks, the company estimated the beta of each project versus both the company’s other assets and the stock market, and it also conducted thorough scenario and simulation analyses. This research produced the following data:

Project A

Project B

Expected NPV

$6,000

$6,000

Standard deviation (σNPV)

$1500

$1200

Project beta (vs. market)

0.8

0.9

Correlation of the project cash flows with cash flows from currently existing projects.

Cash flows are not correlated with the cash flows from existing projects.

Cash flows are highly correlated with the cash flows from existing projects.

Which project has more market risk, stand-alone risk, and corporate (within the firm) risk? Explain your answer.

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