Question

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	18,000

BPC has decided to evaluate the riskier project at 11% and the less-risky project at 10%.

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 (σ_B) is $5,798 and its coefficient of variation (CV_B) is 0.76. What are the values of (σ_A) and (CV_A)? 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:

Answer 1

project B Standard deviations and  coefficient of variation already given in the question but in below explained how to get the answer of both project.

A. First find the expected annual cash flows of each project
Project A
probability	cash flows	expected cash flows = (probability X cash flows)
0.2	6500	1300
0.6	6750	4050
0.2	7000	1400
		6750
Project B
probability	cash flows	expected cash flows = (probability X cash flows)
0.2	0	0
0.6	6750	4050
0.2	18000	3600
		7650
Standard deviation and coefficient of variance of Project A
find the deviations from Mean
cash flows	expected cash flows	deviations from Mean (cash flows - expected cash flows)
6250	6750	-500
7000	6750	250
7750	6750	1000
now Standard deviation and coefficient of variance of Project A
deviations from Mean	squared deviations from Mean	probability	probability X squared deviations
-500	250000	0.2	50000
250	62500	0.6	37500
1000	1000000	0.2	200000
		Variance	287500
		Square root of variance = standard deviations (287500)^0.5	536.1903
		Divide by expected return - Mean	6750
		coefficient of variation (536.1903/6750)	0.079436
Standard deviation and coefficient of variance of Project B
find the deviations from Mean
cash flows	expected cash flows	deviations from Mean (cash flows - expected cash flows)
0	7650	-7650
6750	7650	-900
18000	7650	10350
now Standard deviation and coefficient of variance of Project B
deviations from Mean	squared deviations from Mean	probability	probability X squared deviations
-7650	58522500	0.2	11704500
-900	810000	0.6	486000
10350	107122500	0.2	21424500
		Variance	33615000
		Square root of variance = standard deviations (33615000)^0.5	5798
		Divide by expected return - Mean	7650
		coefficient of variation (5798/7650)	0.76