Risky Cash Flows

The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $5,750 and has an expected life of 3 years. Annual cash flows from each project begin 1 year after the initial investment is made and have the following probability distributions:

Project A					Project B
Probability	Cash Flows				Probability	Cash Flows
0.2	$	5,000			0.2	$	0
0.6		5,750			0.6		5,750
0.2		6,500			0.2		15,000

BPC has decided to evaluate the riskier project at a 12% rate and the less risky project at a 10% rate.

1. What are the expected values of the annual cash flows from each project? Do not round intermediate calculations. Round your answers to the nearest dollar.

   	Project A	Project B
   Expected annual cash flow	$	$

   What is the coefficient of variation (CV) for each project? Do not round intermediate calculations. Round your answers to two decimal places.

   	Project A	Project B
   Coefficient of variation

2. What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent.

   	Project A	Project B
   Risk-adjusted NPV	$	$

3. If it were known that Project B is negatively correlated with other cash flows of the firm whereas Project A is positively correlated, how would this affect the decision?

   This would tend to reinforce the decision to (accept/reject) Project B.

If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk?

(yes/no)