The Butler Perkins Company (BPC) must decide between two mutually exclusive projects Each costs $8,500 and has an expected life of 5 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 $4,750 0 2 $0 0 6 $5,500 0 6 $5,500 0 2 $6,250 0 2 $18,000 BPC has decided to evaluate the riskier project at 12 and the less risky project at 7 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 Ch 12 Weekly Question xlsx You can review an example problem on this worksheet Ch 12 Weekly Question Example xlsx 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 $5944 75 , and its coefficient of variation (CV B ) is 0 86 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 or 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 Would this make Project B more appealing or 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 Would this make Project B more appealing or less appealing

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Aug 01, 2024

The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $8,500 and has an expected life of 5 years. Annual project cash

The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $8,500 and has an expected life of 5 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	$4,750		0.2	$0
0.6	$5,500		0.6	$5,500
0.2	$6,250		0.2	$18,000

BPC has decided to evaluate the riskier project at 12% and the less-risky project at 7%. 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.

Ch. 12 - Weekly Question .xlsx

You can review an example problem on this worksheet: Ch. 12 - Weekly Question - Example.xlsx

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 $5944.75, and its coefficient of variation (CV_B) is 0.86. 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 or 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. Would this make Project B more appealing or 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? Would this make Project B more appealing or less appealing?