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The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial after-tax cash outflow of $6,750 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 $6,750 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 $6,500 0.2 $ 0
0.6 6,750 0.6 6,750
0.2 7,000 0.2 18,000

BPC has decided to evaluate the riskier project at 11% and the less-risky project at 9%.

  1. 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 $5,798 and its coefficient of variation (CVB) is 0.76. 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:
  2. Based on the risk-adjusted NPVs, which project should BPC choose? -Select-Project AProject BItem 5
  3. 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-This would make Project B more appealing.This would make Project B less appealing.Item 6 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-This would make Project B more appealing.This would make Project B less appealing.

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