11-15 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 is made and have the following probability distributions:

Project A		Project B
Probability	Cash Flows	Probability	Cash Flows
0.2	$6,500	0.2	$0
0.6	$6,750	0.6	$6,750
0.2	$7,500	0.2	$18,000

BBC has decided to evaluate the riskier project at 12% rate and the less risky project at a 10% rate.

A. What is the expected value of the annual net cash flows from each project? What is a coefficient of variation CV?

B. What is the risk-adjusted NPV of each project?

C. If it were known that project B is negatively correlated with other cash flows of the firm whereas project A is positively correlated, how would this affect that decision? If project B's cash flows were negatively correlated with gross domestic product GDP, would that influence your assessment of its risk?

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