You are considering two mutually exclusive investment proposals, project A and project B B's expected value of net present value is $1,000 less than that for A and A has less dispersion. On the basis of risk and return, you would say that
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A. B. C. D.A
When evaluating investment proposals, it is important to consider both the potential return and the level of risk involved. In this scenario, we have two mutually exclusive investment proposals - Project A and Project B.
According to the question, the expected value of net present value (NPV) for Project A is higher than that for Project B, and Project A has less dispersion. This means that Project A is expected to generate a higher return and is less risky compared to Project B.
Now, we need to determine which project is more desirable on the basis of risk and return.
Option A states that Project A dominates Project B. This is a valid conclusion because Project A is expected to generate a higher return and is less risky compared to Project B. Therefore, Project A is the better investment choice.
Option B states that Project B dominates Project A. This is not a valid conclusion based on the information given in the question. Project B has a lower expected NPV and higher risk compared to Project A.
Option C suggests that Project A is more risky but should offer greater expected value. This is not a valid conclusion based on the information given in the question. The question states that Project A has less dispersion, which means it is less risky compared to Project B.
Option D states that each project is high on one variable, so the two are basically equal. This is not a valid conclusion based on the information given in the question. Project A has higher expected NPV and lower risk compared to Project B.
In conclusion, option A is the correct answer as Project A dominates Project B on the basis of risk and return.