Question

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%.

1. What is each project's expected annual cash flow? Round your answers to two decimal places.

   Project A $

   Project B $

   Project B's standard deviation (σ_B) is $5,426 and its coefficient of variation (CV_B) is 0.71. What are the values of (σ_A) and (CV_A)? Round your answer to two decimal places.

   σ_A = $

   CV_A =

Answer 1