A D $7,000.00 3 $750.00 Excel Online Structured Activity: Project risk analysis Project risk analysis The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7.000 and has an expected life of 3 years. Annual project cash flows begin Costs, Projects A and B ) 1 year after the initial investment and are subject to the following probability distributions: Expected life of projects in years) Difference between Project A CFs Project A Project B Project A Probability Cash Flows Probability Cash Flows Probability 0.2 0.2 $6,250 0.2 $0 0.6 0.6 $7.000 0.6 $7,000 $ 0.2 0.2 $7.750 0.2 $19,000 $ Project B: Probability BPC has decided to evaluate the riskier project at 12% and the less-risky project at 9%. The data has been collected in the Microsoft Excel Online file below. Open the 0.2 spreadsheet and perform the required analysis to answer the questions below. 0.6 0.2 Discount rate, risky project Open spreadsheet Discount rate, less risky project Cash Flows $6,250.00 $7,000.00 $7,750.00 Cash Flows $0.00 $7,000.00 $19,000.00 12.00% 9.00% a. What is each project's expected annual cash flow? Round your answers to two decimal places. ? . Project A: $ Project B: $ Formulas Project B's standard deviation (p) is $6,131.88 and its coefficient of variation (CV) is 0.77. What are the values of (A) and (CVA)? Round your answers to two decimal places. Calculation of Expected CF, SD and CV: Project A: Expected annual cash flow Standard deviation (SDA) Coefficient of variation (CVA) DA = $ - $ #N/A #N/A #N #/A #N/A CVA b. Based on the risk-adjusted NPVS, which project should BPC choose? #N/A Project B: Expected annual cash flow Standard deviation (SD) Coefficient of variation (CVE) $10,079.68 #DIV/0! c. If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows were positively correlated, how might this affect the decision? Which project is riskier? Project A risk-adjusted discount rate Project B risk-adjusted discount rate #N/A #N/A #N/A If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's cash flows were positively correlated, would that influence your risk assessment? Calculation of Risk-Adjusted NPVs: NPVA NPVE Which project should be chosen? #N/A #N/A #N/A