A company is considering Projects X and Y with following information: Project Expected NPV (₹) Standard deviation X 1,22,000 90,000 Y 2,25,000…

(i) Recommendation based on Standard Deviation: Based on the standard deviation, Project X (SD = 90,000) is less risky than Project Y (SD = 1,20,000). If the decision criterion is to choose the project with lower risk for a given return, Project X would be chosen. (ii) Opinion change using Coefficient of Variation (CV): Coefficient of Variation (CV) = Standard Deviation / Expected NPV CV X = 90,000 / 1,22,000 ≈ 0.738 CV Y = 1,20,000 / 2,25,000 ≈ 0.533 If we use the Coefficient of Variation as a measure of risk, our opinion would change. Project Y has a lower Coefficient of Variation (0.533) compared to Project X (0.738). This means Project Y offers a higher return per unit of risk. Therefore, based on CV, Project Y appears to be less risky relative to its expected return and should be accepted. (iii) Most appropriate measure and why: In this situation, where the projects have different expected NPVs and standard deviations, the Coefficient of Variation is a more appropriate measure than just standard deviation. The Coefficient of Variation allows for a comparison of risk per unit of return, which is crucial when projects are of different scales or have different expected outcomes. The NPV method, when combined with a risk-adjusted measure like CV, is in compatibility with the objective of wealth maximization in terms of time value.