Question
Problem 12-12 Project risk analysis The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 and has an expected life of
Problem 12-12 Project risk analysis
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 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 | $5,750 | 0.2 | $0 | |
0.6 | $6,500 | 0.6 | $6,500 | |
0.2 | $7,250 | 0.2 | $19,000 |
BPC has decided to evaluate the riskier project at 13% and the less-risky project at 9%.
Project B's standard deviation (B) is $6,185 and its coefficient of variation (CVB) is 0.80. What are the values of (A) and (CVA)? Round your answer to two decimal places. A = $ ????? CVA = ??????
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