Question

In: Finance

Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each...

Risky Cash Flows

The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $8,000 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 Net Cash
Flows
Probability Net Cash
Flows
0.2 $5,000 0.2 $        0  
0.6 6,750 0.6 6,750
0.2 7,000 0.2 19,000

BPC has decided to evaluate the riskier project at a 12% rate and the less risky project at a 10% rate.

  1. What is the expected value of the annual net cash flows from each project? Do not round intermediate calculations. Round your answers to nearest dollar.
    Project A Project B
    Net cash flow $ $

    What is the coefficient of variation (CV)? Do not round intermediate calculations. (Hint: σB=$6,158 and CVB=$0.78.)
    σ (to the nearest whole number) CV (to 2 decimal places)
    Project A $
    Project B $

  2. What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answer to the nearest dollar.
    Project A $
    Project B $

  3. If it were known that Project B is negatively correlated with other cash flows of the firm whereas Project A is positively correlated, how would this affect the decision?
    This would tend to reinforce the decision to

Project B.

If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE


Related Solutions

Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each...
Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,000 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 7,000 0.2 16,000 BPC has decided to evaluate the riskier project at...
Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each...
Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $5,250 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 8,000 0.2 20,000 BPC has decided to evaluate the riskier project at...
Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each...
Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,250 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 8,000 0.2 20,000 BPC has decided to evaluate the riskier project at...
Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each...
Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,250 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 8,000 0.2 20,000 BPC has decided to evaluate the riskier project at...
Problem 11-15 Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment...
Problem 11-15 Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $6,750 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 Net Cash Flows Probability Net Cash Flows 0.2 $7,000 0.2 $        0   0.6 6,750 0.6 6,750 0.2 8,000 0.2 16,000 BPC has decided to evaluate...
Problem 11-15 Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment...
Problem 11-15 Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,000 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 Net Cash Flows Probability Net Cash Flows 0.2 $6,000 0.2 $        0   0.6 6,750 0.6 6,750 0.2 7,000 0.2 16,000 BPC has decided to evaluate...
Problem 11-15 Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment...
Problem 11-15 Risky Cash Flows 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 Net Cash Flows Probability Net Cash Flows 0.2 $6,000 0.2 $        0   0.6 6,750 0.6 6,750 0.2 8,000 0.2 16,000 BPC has decided to evaluate...
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...
The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $5,250...
The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $5,250 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 17,000 BPC has decided to evaluate the riskier project at a 11% rate...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT