Question

The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,500 and has an expected life of 3 years. Annual net cash flows from each project begin 1 year after the initial investment is made and have the following probability distributions:

PROJECT A PROJECT B Probability Net Cash Probability Net Cash Flows Flows $5,000 0.2 0.2 0.6 6,750 0.6 6,750 8,000 0.2 0.2 20,000 BPC has decided to evaluate the riskier project at a 12% rate and the less risky project at a 9% rate. a. What is the expected value of the annual net cash flows from each project? Do not round intermediate calculations. Round your answers to nearest dollar. Project B Project A Net cash flow $ What is the coefficient of variation (CV)? Do not round intermediate calculations. (Hint: os -$6,522 and CVB-$0.81. ) a (to the nearest CV (to 2 decimal whole number) places) Project A Project B b. What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answer to the nearest dollar. Project A Project B

Answer 1

et Cast Prom A = net Cash Floco B A Hm A = 2001-2) + 67501-6) + you (-2) - 7500 = -850 B = ot 6750 (-6) + 29000/2) - 750 550 = PY 5,44,500 STO 6750 8 Suco 6750 2 ro yoso 4000 Tx 100 4000 llco Ž 6650 19,15 poup Gooo 3, 64,500 9,15, no a 8050 7= = tsb cu (S.Dlmen) 14 [957/6650 project A projects tsko (b) à popet B has higher as therefore more risky. porect B setem cecill be discounted @ 12 1 and actured be distantel e 71.. project A Barreta CF PX CF 1000 هر 50 675 Tue 91 417.43 3408.80 1.235-49 5761-75 net Cash flor > SS21:72 - 750 - 1938.98 16oo فر Px4 Tue 2 4o50 és o is net Cash Floos 6:75. 76-7500 - 24-24 onlar 3228.69 2847-12 6075.76 Yovo