Banco Popolare(BP), uses a WACC of 10 percent to evaluate average-risk projects. The company adds 3 percentage points to 10 percent to evaluate projects of high risk and subtracts 3 percentage points from 10 percent to evaluate projects of low risk. BP uses coefficient of variation (CV) to measure riskiness of the projects.

Currently, two mutually exclusive projects are under consideration by BP. Both have a cost of $400,000 and will last 4 years. Project A has a coefficient variable (CV) of 2.30 and will produce annual end of year cash flows of $71,104. Project B, with CV 1.70 will produce cash flows of $146,411 at the end of Years 3 and 4 only.

BP classifies a project of average-risk, if projects CV is 2.00.

Required:

Which project BP should accept. Please show your calculations step by step