Question
A company is considering investing in two different projects, Project A and Project B. The expected cash flows and their probabilities under good and bad
A company is considering investing in two different projects, Project A and Project B. The expected cash flows and their probabilities under good and bad economic conditions are shown below:
| Project/ Economic Condition | Good | Bad |
|---|---|---|
| A | $80,000 (0.6) | $30,000 (0.4) |
| B | $50,000 (0.7) | $20,000 (0.3) |
a) Calculate the expected values for each project under both economic conditions.
b) Calculate the standard deviation of the cash flows for each project under both economic conditions.
c) Use the coefficient of variation (CV) to determine which project is less risky under both economic conditions.
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Accounting Principles
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
9th Edition
978-0470317549, 9780470387085, 047031754X, 470387084, 978-0470533475
