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please bold the answer PROJECT RISK ANALYSIS The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,750 and has an expected
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PROJECT RISK ANALYSIS The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,750 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 0.6 0.2 $6,500 6,750 7,000 0.2 0.6 0.2 $0 6,750 18,000 BPC has decided to evaluate the riskier project at 13% and the less-risky project at 9% a. What is each project's expected annual cash flow? Round your answers to two decimal places. Project A $ Project B $ Project B's standard deviation (oB) is $5,798 and its coefficient of variation (CVB) is 0.76. What are the values of (oA) and (CVA)? Round your 6750 7500 answer to two decimal places. .76 CVA- .76 b. Based on the risk-adjusted NPVs, which project should BPC choose? Project B c. If you knew that Project B's cash flows were negatively correlated with the firm's other cash flows, but Project A's cash flows were positively correlated, how might this affect the decision? This would make Project B more appealing. 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? This would make Proiect B more appealingStep by Step Solution
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