The Butler Perkins Company (BPC) must decide between two mutually exclusive projects Each costs $6,500 and has an expected life of 3 years Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions Project A Project B Probability Cash Flows Probability Cash Flows 0 2 $5,750 0 2 $0 0 6 $6,500 0 6 $6,500 0 2 $7,250 0 2 $19,000 BPC has decided to evaluate the riskier project at 11 and the less risky project at 9 The data has been collected in the Microsoft Excel Online file below Open the spreadsheet and perform the required analysis to answer the questions below What is each project's expected annual cash flow Round your answers to two decimal places Project A $ Project B $ Project B's standard deviation ( B ) is $6,185 47 and its coefficient of variation (CV B ) is 0 80 What are the values of ( A ) and (CV A ) Round your answers to two decimal places A $ CV A Based on the risk adjusted NPVs, which project should BPC choose Project A Project B If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows were positively correlated, how might this affect the decision This would make Project B more appealing This would make Project B less appealing If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's cash flows were positively correlated, would that influence your risk assessment This would make Project B more appealing This would make Project B less appealing A B D Project risk analysis Costs, Projects A and B Expected life of projects in years) Difference between Project A CFS $6,500 00 3 $750 00 Project A Probability 0 2 0 6 0 2 Cash Flows $5,750 00 $6,500 00 $7,250 00 1 2 B Project B 4 5 Probability 0 2 0 6 0 2 Cash Flows $0 00 $6,500 00 $19,000 00 6 3 Discount rate, risky project Discount rate, less risky project 11 00 9 00 1 Formulas 2 Calculation of Expected CF, SD and CV 3 Project A 4 Expected annual cash flow 5 Standard deviation (SDA) 5 Coefficient of variation (CVA) N A N A N A N A 3 Project B Expected annual cash flow Standard deviation (SD) 1 Coefficient of variation (CV) $9,876 74 DIV 0 2 3 Which project is riskier 4 Project A risk adjusted discount rate 5 Project B risk adjusted discount rate N A N A N A Calculation of Risk Adjusted NPVS NPVA NPVE Which project should be chosen N A N A N A

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

The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions:

Project A		Project B
Probability	Cash Flows	Probability	Cash Flows
0.2	$5,750	0.2	$0
0.6	$6,500	0.6	$6,500
0.2	$7,250	0.2	$19,000

BPC has decided to evaluate the riskier project at 11% and the less-risky project at 9%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

What is each project's expected annual cash flow? Round your answers to two decimal places.

Project A: $

Project B: $

Project B's standard deviation (_B) is $6,185.47 and its coefficient of variation (CV_B) is 0.80. What are the values of (_A) and (CV_A)? Round your answers to two decimal places.

_A = $

CV_A =
Based on the risk-adjusted NPVs, which project should BPC choose?

_________Project A // Project B
If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows were positively correlated, how might this affect the decision?

_________ This would make Project B more appealing // This would make Project B less appealing.
If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's cash flows were positively correlated, would that influence your risk assessment?

_________This would make Project B more appealing. // This would make Project B less appealing.

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A B D Project risk analysis Costs, Projects A and B Expected life of projects in years) Difference between Project A CFS $6,500.00 3 $750.00 Project A Probability 0.2 0.6 0.2 Cash Flows $5,750.00 $6,500.00 $7,250.00 1 2 B Project B 4 5 Probability 0.2 0.6 0.2 Cash Flows $0.00 $6,500.00 $19,000.00 6 3 Discount rate, risky project Discount rate, less risky project 11.00% 9.00% 1 Formulas 2 Calculation of Expected CF, SD and CV: 3 Project A 4 Expected annual cash flow 5 Standard deviation (SDA) 5 Coefficient of variation (CVA) #N/A #N/A #N/A #N/A 3 Project B: Expected annual cash flow Standard deviation (SD) 1 Coefficient of variation (CV) $9,876.74 #DIV/0! 2 3 Which project is riskier? 4 Project A risk-adjusted discount rate 5 Project B risk-adjusted discount rate #N/A #N/A #N/A Calculation of Risk-Adjusted NPVS: NPVA NPVE Which project should be chosen? #N/A #N/A #N/A