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Risky Cash Flows the initial investment is made and have the following probability distributions: Project A Project B B P C has decided to evaluate
Risky Cash Flows
the initial investment is made and have the following probability distributions:
Project A
Project B
has decided to evaluate the riskier project at a rate and the less risky project at an rate.
a What is the expected value of the annual cash flows from each project? Do not round intermediate calculations. Round your answers to the nearest dollar.
b What is the riskadjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent.
Project A:
c 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
Project B
If Project Bs cash flows were negatively correlated with gross domestic product GDP would that influence your assessment of its risk? Please use excel for your calculation and show the formula used. Thank you
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