For two mutually exclusive investments, the management of the company has developed cash flow estimates as pessimistic,

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For two mutually exclusive investments, the management of the company has developed cash flow estimates as pessimistic, most likely, and optimistic.

A B Investment 5,500 5,500 Pessimistic 200 700 Most likely 800 800 Optimistic 1,400 900 Both projects have a life of 15 years. Cost of capital = 14 percent. Which project is more risky? Recalculate NPV if the probabilities of the three situations are 30 percent, 50 percent and 20 percent respectively.

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