The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 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 | $6,250 | 0.2 | $0 | |
0.6 | $7,000 | 0.6 | $7,000 | |
0.2 | $7,750 | 0.2 | $19,000 |
BPC has decided to evaluate the riskier project at 13% and the less-risky project at 10%. 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.
What is each project's expected annual cash flow? Round your answers to two decimal places.
Project A: $
Project B: $
Project B's standard deviation (σB) is $6,131.88 and its coefficient of variation (CVB) is 0.77. What are the values of (σA) and (CVA)? Round your answers to two decimal places.
σA = $
CVA =
Based on the risk-adjusted NPVs, which project should BPC choose?
Project A or Project B
If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows were positively correlated, how might this affect the decision?
This would make project B more appealing? or This would make project B less appealing?
d.If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's cash flows were positively correlated, would that influence your risk assessment?
This would make project B more appealing? or This would make project B less appealing?
Please Help Thank you!
I have answered the question via handwritten sheets.Kindly have a look at it.
It involves evaluating Project A and Project B in terms of risk
and return.
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 and has...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 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 $6,250 0.2 $0 0.6 $7,000 0.6 $7,000 0.2 $7,750 0.2 $19,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 10%. What...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial outflow of $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 17,000 BPC has decided to evaluate the riskier project at 13% and...
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 $6,250 0.2 $0 0.6 $6,500 0.6 $6,500 0.2 $6,750 0.2 $19,000 BPC has decided to evaluate the riskier project at 13% and the less-risky project at 9%. The...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 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 $6,250 0.2 $0 0.6 $7,000 0.6 $7,000 02 $7,750 0.2 $19,000 BPC has decided to evaluate the riskier project at 13% and the less-risky project at 10%. a....
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 13% and the
less-risky project at 8%. The...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial outflow of $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 Cash Flows Probability Cash Flows Probability $5,750 $ 0.2 0.2 0 6,500 0.6 0.6 6,500 19,000 0.2 7,250 0.2 BPC has decided to evaluate the riskier project at 13% and...
Excel Online Structured Activity: Project risk analysis The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,750 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 $6,750 0.6 $6,750 0.2 $7,500 0.2 $18,000 BPC has decided to evaluate the riskier project at 12%...
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 $5,750 0.2 $0 0.6 $6,500 0.6 $6,500 0.2 $7,250 0.2 $19,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 9%. The...
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...
B.) Based on the
risk-adjusted NPVs, which project should BPC choose? Project A or
B? C.) If you knew that Project B's cash flows
were negatively correlated with the firm's other cash flow, but
Project A's cash flows were positively correlated, how might this
affect the decision? Would it make Project B more or less
appealing? D.) If Project B's cash flows were
negatively correlated with gross domestic product (GDP), while A's
cash flows were positively correlated, would that influence...