Question

The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $6,000 0.2 $0 0.6 $6,500 0.6 $6,500 0.2 $7,000 0.2 $18,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 9%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. What is each project's expected annual cash flow? Round your answers to two decimal places. Project A: $ 6500 Project B: $ 7500 Project B's standard deviation (CB) is $5,822.37 and its coefficient of variation (CVB) is 0.78. What are the values of (a) and (CVA)? Round your answers to two decimal places. CA = $ 2.69 CVA = 0.023

Answer 1

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STATS - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Calibri Dr General -11AA = = = B- A Wrap Text Merge & Center - m Find & B I U $ -% . Cell Styles Insert Delete Format Conditional Format Formatting as Table Styles AutoSum - A Fill 2 Sort & 2 Clear Filter Editing E Copy Paste Format Painter Clipboard IM402 J Select Font Alignment Number Cells fax IKILIM IN 10 Q IR 402 STATE PROB Α 1 403 PROJECT A 404 405 406 407 408 409 410 411 412 413 PROJECT B 414 415 416 417 418 419 RETURN EXPECTED VARIANCE (R) RETURN PROB*(R-E(R))^2 A*B 0.2 6000 1200 50000 0.6 6500 3900 0.2 7000 1400 50000 (E(R)= 6500 VARIANCE 100000 STANDARD DEVIATION 316.23 3 STATE PROB 1 2 3 0.2 0.6 0.2 RETURN EXPECTED VARIANCE (R) RETURN PROB*(R-E(R)^2 AB 0 0 11250000 6500 3900 600000 18000 3600 22050000 (E(R) = 7500 VARIANCE 33900000 STANDARD DEVIATION 5822.37 420 421 422 H P EMV MEAN STDV assignment DEAR Sheet2 COV TIME SERIES corr REGRESSION range CAMERA TREND freg_MATRIX V FV DIVIDEND ferences Rea INTERVAL, NORMAL HYPOTHI 20J 120% + 9 . * ENG 24-11-2019 ... B

STATS - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Σ AutoSum : A Calibri Dr General Wrap Text Merge & Center - B I U $ -% . Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill Clear E Copy Paste Format Painter Clipboard IP442 Sort & Filter Editing Find & Select Alignment Number Cells -11AA = = = B- A Font fax IK I L ANNUAL NET CASH FLOW PROJECT A PROJECT B I M IN 10 IP Q R S 6500 7500 SD 316.23 CV = SD/ANNUAL NET CASH FLOW 0.05 (=IM429/IM425] PROJECT A 424 ANS a 425 426 427 428 429 430 431 ANS b 432 433 434 435 436 NPV (A)= PV OF CFAT - INVESTMENT 6500 X PVIFA @ 9%, 3 YEARS - 6500 6500 X 2.531295 - 6500 9953.42 FORMULA: (1/r)*(1-(1/(1+r)^n)) PVIFA@ 9%, 3 YEARS PVIFA@ 11%, 3 YEARS 2.531295 2.443715 437 438 NPV (B) PV OF CFAT - INVESTMENT 7500 X PVIFA @ 11%, 3 YEARS - 6500 7500 X 2.443715-6500 11827.86 BASED ON RISK ADJUSTED NPVS, COMPANY SHOULD SELECT PROJECT B 439 440 441 442 ANSC 443 PROJECT B IS MORE APPEALING 444 H P PROJECT B IS MORE APPEALING EMV MEAN STDV assignment DEAR Sheet2 COV TIME SERIES corr REGRESSION range CAMERA TREND freg_MATRIX V FV DIVIDEND ferences Red INTERVAL, NORMAL HYPOTHI BOJ 120% - _ + 9 . * ENG 24-11-2019 ... B