Question

Project X is very risky and has an NPV of $3 million. Project Y is very safe and has an NPV of $2.5 million. They are mutually exclusive, and project risk has been properly considered in the NPV analyses.

Which project should be chosen? Explain.

Answer 1

Project X, with an NPV of $3 million, should be chosen over Project Y, with an NPV of $2.5 million.

Step-by-step explanation:

Project X and Project Y are mutually exclusive investment options. Project X has a Net Present Value (NPV) of $3 million, while Project Y has an NPV of $2.5 million.

In this case, the project with the higher NPV should be chosen. Since Project X has a higher NPV of $3 million compared to Project Y's NPV of $2.5 million, Project X should be chosen.

Note that the risk associated with each project has already been considered in the NPV analysis. Therefore, based on the given information, Project X is the better choice.