Question
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial after-tax cash outflow of $7,000 and has an expected
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial after-tax cash outflow of $7,000 and has an expected life of 3 years. Annual project after-tax 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 7,000 0.6 7,000 0.2 7,750 0.2 18,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 10%. What is each project's expected annual after-tax cash flow? Round your answers to the nearest cent. Project A: $ Project B: $ Project B's standard deviation (B) is $5,776 and its coefficient of variation (CVB) is 0.74. What are the values of A and CVA? Do not round intermediate calculations. Round your answer for standard deviation to the nearest cent and for coefficient of variation to two decimal places. A: $ CVA: Based on the risk-adjusted NPVs, which project should BPC choose? -Select- If you knew that Project B's cash flows were negatively correlated with the firm's other cash flows, but Project A's cash flows were positively correlated, how might this affect the decision? -Select- 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? -Select
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