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Aesop has to choose between two mutually exclusive projects that have 5-year lives and conventional cash flows. Project Lion has an NPV of $73,406 and a payback period of 3.48 years. Project Lamb has a payback period of only 2.22 years and an IRR of 13.22 percent. The required return for Project Lion is 16 percent while it is 14 percent for Project Lamb.
Which project, if any, should Aesop recommend?
A) Accept Project Lion since it has a higher NPV.
B) Accept Project Lamb because it has the lower required return and must be the safer investment.
C) Not enough information.
D) Accept both projects because both NPVs are positive.
E) Accept Project Lamb because it has the shortest payback period.
What position would the financial insistution need to take in these options and the underlying stock to make the portfolio delta, gamma, and vega nuetrual?
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