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The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial outflow of $6,750 and has an expected life of
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial outflow of $6,750 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 | $6,250 | 0.2 | $ 0 | |
0.6 | 6,750 | 0.6 | 6,750 | |
0.2 | 7,250 | 0.2 | 18,000 |
BPC has decided to evaluate the riskier project at 12% and the less-risky project at 8%.
- What is each project's expected annual cash flow? Round your answers to the nearest cent.
Project A: $ Project B: $ A: $ CVA:
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