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M . John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two

M. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows
Save & Exit
Mindy Acres
Hillcrest Apartments Aftertas
Yearly Aftertas Cash Inflow
Probability
0.1
Yearly Cash Inflow
15,000
10,000
8.2
Probability
0.2
0.3
0.4
15,000
30,000
20,000
30,000
0.40.2
45,000
40,000
0.1
50,000
0.1
Mr. Backster is likely to hold the apartment complex of his choice for about 25 years and will use this period for decision-making purposes. Either apartment can be purchased for $200,000. Mr. Backster uses a risk-adjusted discount rate approach when evaluating investments. His scale is related to the coefficient of variation (for other types of investments, he also considers other measures)
Coefficient of
Variation
Discount Rate 5%
9
13
0-0.35
0.35-0.40
(cost of capital)
0.40-0.50
Over 0.50
not considered
a. Compute the risk-adjusted net present value for Windy Acres and Hillcrest Apartments. (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answers to nearest whole dollar.)
Kindy Acres
Net present value
Hillcrest Apartments

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