Daldorn – Sep 19 Exam

Hi,

Could you advise on the following please?

3 b) Although there are 2 external variables, because the revised risk attitude of the board is risk seeker, I believe the correct selling price is £95 as this provides the maximum pay-off. Am I right? I saw some other students said they had £75 instead.

3 c) I got the same NPV for project A as the one given for project B. Project B is riskier because its outcomes has a higher standard deviation. However, the VC is risk neutral so I believe they will only look at the expected values and ignore standard deviation. If it’s true, what other tool could be used for deciding between the two projects?

Thank you.