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The Bartram - Pulley Company ( BPC ) must decide between two mutually exclusive investment projects. Each project costs $ 7 , 0 0 0
The BartramPulley Company BPC must decide between two mutually exclusive investment projects. Each project costs $ and has an expected life of years, Annual cash
flows from each project begin year after the initial investment is made and have the following probability distributions:
BPC has decided to evaluate the riskier project at an rate and the less risky project at a rate.
a 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
b What is the riskadjusted NPV of each project? Do not round intermediate calculations, Round your answers to the nearest cent.
Riskadjusted NPV
Project A
Project B
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 Select Project
If Project s cash flows were negatively correlated with gross domestic product GDP would that influence your assessment of its risk?
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