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 $17,000 BPC has decided to evaluate the riskier project at 12 and the less risky project at 8 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 Open spreadsheet Project risk analysis Costs, Projects A and B $6,500 00 Expected life of projects (in years) 3 Difference between Project A CFs $750 00 Project A Probability Cash Flows 0 2 $5,750 00 0 6 $6,500 00 0 2 $7,250 00 Project B Probability Cash Flows 0 2 $0 00 0 6 $6,500 00 0 2 $17,000 00 Discount rate, risky project 12 00 Discount rate, less risky project 8 00 Calculation of Expected CF, SD and CV Formulas Project A Expected annual cash flow N A Standard deviation (SDA) N A Coefficient of variation (CVA) N A Project B Expected annual cash flow N A Standard deviation (SDB) $9,118 66 Coefficient of variation (CVB) DIV 0 Which project is riskier N A Project A risk adjusted discount rate N A Project B risk adjusted discount rate N A Calculation of Risk Adjusted NPVs NPVA N A NPVB N A Which project should be chosen N A 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 $5,464 43 and its coefficient of variation (CV B ) is 0 75 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 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 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

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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	$17,000

BPC has decided to evaluate the riskier project at 12% and the less-risky project at 8%. 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.

Open spreadsheet

Project risk analysis

Costs, Projects A and B	$6,500.00
Expected life of projects (in years)	3
Difference between Project A CFs	$750.00

Project A:
Probability	Cash Flows
0.2	$5,750.00
0.6	$6,500.00
0.2	$7,250.00

Project B:
Probability	Cash Flows
0.2	$0.00
0.6	$6,500.00
0.2	$17,000.00

Discount rate, risky project	12.00%
Discount rate, less risky project	8.00%

Calculation of Expected CF, SD and CV:		Formulas
Project A:
Expected annual cash flow		#N/A
Standard deviation (SDA)		#N/A
Coefficient of variation (CVA)		#N/A

Project B:
Expected annual cash flow		#N/A
Standard deviation (SDB)	$9,118.66
Coefficient of variation (CVB)	#DIV/0!

Which project is riskier?		#N/A
Project A risk-adjusted discount rate		#N/A
Project B risk-adjusted discount rate		#N/A

Calculation of Risk-Adjusted NPVs:
NPVA		#N/A
NPVB		#N/A
Which project should be chosen?		#N/A

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 $5,464.43 and its coefficient of variation (CV_B) is 0.75. 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?

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?

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?