A company is considering manufacturing 2 mutually exclusive products A and B. Product A

is a watch band specifically designed to fit on watches manufactured by the firm only.

Product B is a watch band that is designed to be adapted to a variety of watches including

those produced by competitors. Expected investment is $100,000 for each of the products.

Expected cash flows are $20,000 per year for product A. The expected value for B is $23,000

for 8 years also.

The coefficient of variation (CV) for A is 1.0 and for B is 1.5.

Because of high risk attached

to B the risk adjustment to B is k=15% and for product A, k=10%. Which project would you

recommend to the company for investment?