Capital Budgeting

1. Consider the probability distributions of the first year cash flows of two projects, MNO and PQR: MNO POR Possible cash Probability Possible cash Probability flow flow -$10,000 40% -$10,000 10% $0 45% $0 65% +$20,000 15% +$30,000 25% (a) Calculate the range of possible cash flows for each project (b) Calculate the expected cash flow for each project (c) Calculate the standard deviation of the possible cash flows for each project (d) Calculate the coefficient of variation of the possible cash flows for each project (e) Which project has more risk? Why