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The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $6,500 and has an expected life of 3 years. Annual

The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $6,500 and has an expected life of 3 years. Annual net 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 $6,000 0.2 $ 0
0.6 6,750 0.6 6,750
0.2 7,000 0.2 15,000

BPC has decided to evaluate the riskier project at a 13% rate and the less risky project at a 9% rate.

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.

Project A Project B
Net cash flow $ $

What is the coefficient of variation (CV)? (Hint: B=$4,757.63 and CVB=$0.67.) Do not round intermediate calculations. Round values to the nearest cent and CV values to two decimal places.

CV
Project A $
Project B $

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: $

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-acceptrejectItem 9 Project B.

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

-Select-YesNo

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