Question

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 the riskier project at a 13% rate and the less risky project at a 8% 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: σ_B=$5,097 and CV_B=$0.70.)

   	σ (to the nearest whole number)	CV (to 2 decimal places)
   Project A	$
   Project B	$

2. 
   
3. 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		$

Answer 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	$6650	$7250

What is the coefficient of variation (CV)? Do not round intermediate calculations. (Hint: σ_B=$5,097 and CV_B=$0.70.)

	σ (to the nearest whole number)	CV (to 2 decimal places)
Project A	$339	$0.05
Project B	$5097	$0.70

1. What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answer to the nearest dollar.

   1. Project A		-$843
      Project B		-$584