Problem 13-21 (modified) Mr. 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: Windy Hillcrest Acres Apartments Yearly Aftertax Yearly Aftertax Cash Inflow Probability Cash Inflow Probability 120,000 0.2 125,000 0.2 125,000 8.2 130,000 0.3 140,000 0.2 140,000 0.4 155,000 0.2 150,000 0.1 160,000 0.2 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 $160,000 Me 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 0-0.35 BN 0.35-0.40 (cost of capital) 0.40-0.50 Over 0.50 not considered 12 15 a. Compute the risk adjusted net present value for Windy Acres and Hillcrest Apartments (Do not round Intermediate calculations, Round the final answers to nearest whole dolla) (If you're using the TVM funtion of a calculntor to answer the question, then you can ignore this note. If you're using the PV tables at the back of the book to answer this question, round "PV Factor" to 3 decimal places) a. Compute the risk-adjusted net present value for Windy Acres and Hillcrest Apartments (Do not round intermediate calculations. Round the final answers to nearest whole dollar) (If you're using the TVM funtions of a calculator to answer the question, then you can ignore this note. If you're using the PV tables at the back of the book to answer this question, round "PV Factor" to 3 decimal places.) Windy Acres Hillcrest Apartments Net present value $ $ b-1. Which investment should Mr Backster accept if the two investments are mutually exclusive? Hillcrest Windy Acres O Both None b-2. Which investment should Mr Backster accept If the investments are not mutually exclusive and no capital rationing is involved? Windy Acres Hillcrest Apartments Both 0 None