Question
The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,750 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 $7,750 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 | Net Cash Flows | Probability | Net Cash Flows |
| 0.2 | $5,000 | 0.2 | $ 0 |
| 0.6 | 6,750 | 0.6 | 6,750 |
| 0.2 | 8,000 | 0.2 | 17,000 |
BPC has decided to evaluate the riskier project at a 13% rate and the less risky project at a 8% rate.
What is the coefficient of variation (CV) for both projects? Do not round intermediate calculations. (Hint: B=$5,444 and CVB=$0.73.)
| (to the nearest whole number) | CV (to 2 decimal places) | |||||||
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What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answer to the nearest dollar.
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