Question 5.7: Frank N. Stein plc has the opportunity to invest in two inve...

Financial Management for Decision Makers

Frank N. Stein plc has the opportunity to invest in two investment projects in Transylvania.

The possible outcomes from each project will depend on whether the ruling party of the country wins or loses the next election. (For the sake of simplicity, we shall assume the ruling party will either win or lose outright and there is no possibility of another outcome, such as a hung parliament.) The NPV from each project under each outcome is estimated as follows:

	Project 1	Project 2
	NPV	NPV
	£m	£m
Ruling party wins	(20)	30
Ruling party loses	40	(30)

What should the business do to manage the risks involved in each project?

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