Question
The Butler-Perkins Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $6,750 and has an expected life of 3 years. Annual
The Butler-Perkins Company (BPC) must decide between two mutually exclusive investment
projects. Each project costs $6,750 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 |
.2 | 6,000 | .2 | 0 |
.6 | 6,750 | .6 | 6,750 |
.2 | 7,500 | .2 | 18,000 |
BPC has decided to evaluate the riskier project at a 12 percent rate and the less risky project at a 10 percent rate.(Project B is the riskier one, and A is less).
Required
What is the risk-adjusted NPV of each project?
(I have already know the answer is: NPVA = $10036.25 ; NPVB = $11624.01. I need to know how to calculate it. Please, Do not copy the old answer.)
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