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    Question

    A project has an expected NPV of ₹5 crore, a standard

    deviation of ₹2 crore, and a coefficient of variation of 0.4. If the company has another project with a lower expected NPV but a coefficient of variation of 0.2, which project is riskier and why?
    A First project is riskier due to lower NPV Correct Answer Incorrect Answer
    B Second project is riskier due to lower CV Correct Answer Incorrect Answer
    C First project is riskier due to higher CV Correct Answer Incorrect Answer
    D Risk cannot be compared without beta value Correct Answer Incorrect Answer

    Solution

    Coefficient of Variation (CV) = Std Dev / NPV is a measure of risk per unit return. Higher CV implies greater risk. Hence, the first project is riskier.

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