1I-2A. (Risk-adjusted NPV) The Goblu Corporation is evaluating two mutually exclusive projects, both of which require an initial outlay of $100,000. Each project has an expected life of five years. The probability distributions associated with the arumal cash flows from each project are as follows:

The normal required rate of return for Goblu is 10 percent, but because these projects are riskier than most, it is requiring a higher-than-normal rate of return on them. Project A requires a 12 percent rate of return and project B requires a 13 percent rate of return.

a. Determine the expected value for each project's cash flows.

b. Detennine each project's risk-adjusted net present value.

c. What other factors might be considered in deciding between these projects?

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Probability Distribution for Cash Flow Years 1-5 (the same cash flow each year) PROJECT A PROBABILITY PROJECT B CASH FLOW PROBABILITY .10 .40 .40 .10 CASH FLOW $35,000 .10 40,000 .20 45,000 50,000 .10 22928 $10,000 30,000 40 45,000 .20 60,000 80,000