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…

CA Final · Advanced Financial Management · MTP · January 2026
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 1,20,000 (i) Which project will you recommend based on the above data? (ii) Explain whether your opinion will change, if you use coefficient of variation as a measure of risk. (iii) Which measure is more appropriate in this situation and why?

Suggested Answer and Working Notes:

(i) On the basis of standard deviation project X be chosen because it is less risky than Project Y having higher standard deviation. (ii) CVx = SD / ENPV = 90,000 / 1,22,000 = 0.738 CVy = 1,20,000 / 2,25,000 = 0.533 On the basis of Co-efficient of Variation (C.V.) Project X appears to be riskier and hence Y should be accepted. (iii) However, the NPV method in such conflicting situation is best because the NPV method is in compatibility of the objective of wealth maximisation in terms of time value.

Topics: Advanced Capital Budgeting Decisions

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