Question

In: Finance

The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial...

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 $6,000 0.2 $          0  
0.6   6,750 0.6 6,750  
0.2   7,500 0.2 19,000  

BPC has decided to evaluate the riskier project at 13% and the less-risky project at 9%.

  1. What is each project's expected annual cash flow? Round your answers to the nearest cent.
    Project A: $  
    Project B: $  

    Project B's standard deviation (σB) is $6,158 and its coefficient of variation (CVB) is 0.78. What are the values of (σA) 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.
    σA: $  
    CVA:

  2. Based on their 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 flow, whereas Project A's 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 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.Item 7

Solutions

Expert Solution

Please Thumbs Up

Thanks


Related Solutions

The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial...
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 $6,500 0.2 $          0   0.6   6,750 0.6 6,750   0.2   7,000 0.2 17,000   BPC has decided to evaluate the riskier project at 12% and the...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial outflow of $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 19,000   BPC has decided to evaluate the riskier project at 12% and the...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each project has an initial outflow of $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 $6,250 0.2 $          0   0.6   6,500 0.6 6,500   0.2   6,750 0.2 18,000   BPC has decided to evaluate the riskier project at 11% and the...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 and has...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 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 $6,750 0.2 $0   0.6 7,000 0.6 7,000   0.2 7,250 0.2 18,000   BPC has decided to evaluate the riskier project at 11% and the less-risky project at 8%. What...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 and has...
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 $6,250 0.2 $0   0.6 6,500 0.6 6,500   0.2 6,750 0.2 18,000   BPC has decided to evaluate the riskier project at 13% and the less-risky project at 9%. What...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,750 and has...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $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 $6,000 0.2 $0 0.6 $6,750 0.6 $6,750 0.2 $7,500 0.2 $19,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 10%. What...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 and has...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 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 $6,500 0.2 $0   0.6 7,000 0.6 7,000   0.2 7,500 0.2 17,000   BPC has decided to evaluate the riskier project at 13% and the less-risky project at 9%. What...
PROJECT RISK ANALYSIS The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs...
PROJECT RISK ANALYSIS The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $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 19,000   BPC has decided to evaluate the riskier project at 11% and the less-risky project...
The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,500...
The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,500 and has an expected life of 3 years. Annual net cash flows from each project begin 1 year after the initial investment is made and have the following probability distributions: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $7,000 0.2 $        0   0.6 6,750 0.6 6,750 0.2 7,500 0.2 15,000 BPC has decided to evaluate the riskier project at a 11% rate...
The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,750...
The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,750 and has an expected life of 3 years. Annual net cash flows from each project begin 1 year after the initial investment is made and have the following probability distributions: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $6,000 0.2 $        0   0.6 6,750 0.6 6,750 0.2 8,000 0.2 15,000 BPC has decided to evaluate the riskier project at a 13% rate...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT