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 is each project's expected annual cash flow? Round your answers to two decimal places.
Project A: $ ?
Project B: $ ?
Project B's standard deviation (σB) is $6,157.52 and its coefficient of variation (CVB) is 0.78. What are the values of (σA) and (CVA)? Round your answers to two decimal places.
σA = $ ?
CVA = ?
Based on the risk-adjusted NPVs, which project should BPC choose?
_________ options: Project A or Project B
If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows were positively correlated, how might this affect the decision?
_________ options: This would make Project B more appealing or This would make Project B less appealing.
If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's cash flows were positively correlated, would that influence your risk assessment?
_________ options: This would make Project B more appealing or This would make Project B less appealing.
In: Finance
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 the riskier project at a 12% rate and the less risky project at a 8% rate.
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: ?B=$5,097 and
CVB=$0.70.)
| ? (to the nearest whole number) | CV (to 2 decimal places) | |
| Project A | $ | |
| Project B | $ |
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 | $ |
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
-Select-acceptrejectItem 9 Project B.
If Project B's cash flows were negatively correlated with gross
domestic product (GDP), would that influence your assessment of its
risk?
-Select-YesNoItem 10
In: Finance
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.
| Project A | Project B | |
| Net cash flow | $ | $ |
| σ (to the nearest whole number) | CV (to 2 decimal places) | |
| Project A | $ | |
| Project B | $ |
| Project A | $ | |
| Project B | $ |
Project B.
If Project B's cash flows were negatively correlated with gross
domestic product (GDP), would that influence your assessment of its
risk?
|
|
In: Finance
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 and the less risky project at a 9% rate.
What is the expected value of the annual cash flows from each project? Do not round intermediate calculations. Round your answers to the nearest dollar.
| Project A | Project B | |
| Net cash flow | $ | $ |
What is the coefficient of variation (CV)? (Hint: σB=$5,444 and CVB=$0.73.) Do not round intermediate calculations. Round σ values to the nearest cent and CV values to two decimal places.
| σ | CV | |
| Project A | $ | |
| Project B | $ |
What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent.
| Project A | $ | |
| Project B | $ |
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 -Select-acceptrejectItem 9 Project B.
If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk?
-Select-YesNoItem 10
In: Finance
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 a 12% rate and the less risky project at a 10% rate.
What is the expected value of the annual cash flows from each project? Do not round intermediate calculations. Round your answers to the nearest dollar.
| Project A | Project B | |
| Net cash flow | $ | $ |
What is the coefficient of variation (CV)? (Hint: σB=$5,097 and CVB=$0.70.) Do not round intermediate calculations. Round σ values to the nearest cent and CV values to two decimal places.
| σ | CV | |
| Project A | $ | |
| Project B | $ |
What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent.
| Project A | $ | |
| Project B | $ |
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 -Select-acceptrejectItem 9 Project B.
If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk?
-Select-YesNoItem 10
In: Finance
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 a 12% rate and the less risky project at a 9% rate.
What is the expected value of the annual cash flows from each project? Do not round intermediate calculations. Round your answers to the nearest dollar.
| Project A | Project B | |
| Net cash flow | $ | $ |
What is the coefficient of variation (CV)? (Hint: σB=$6,521.89 and CVB=$0.81.) Do not round intermediate calculations. Round σ values to the nearest cent and CV values to two decimal places.
| σ | CV | |
| Project A | $ | |
| Project B | $ |
What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent.
| Project A: | $ | |
| Project B: | $ |
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 -Select-acceptrejectItem 9 Project B.
If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk?
-Select-YesNo
In: Finance
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 a 13% rate and the less risky project at a 8% rate.
What is the expected value of the annual cash flows from each project? Do not round intermediate calculations. Round your answers to the nearest dollar.
| Project A | Project B | |
| Net cash flow | $ | $ |
What is the coefficient of variation (CV)? (Hint: σB=$6,522 and CVB=$0.81.) Do not round intermediate calculations. Round σ values to the nearest cent and CV values to two decimal places.
| σ | CV | |
| Project A | $ | |
| Project B | $ |
What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent.
| Project A | $ | |
| Project B | $ |
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 -Select-acceptrejectItem 9 Project B.
If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk?
-Select-YesNoItem 10
In: Finance
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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:
BPC has decided to evaluate the riskier project at a 13% rate and the less risky project at a 8% rate.
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In: Finance
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Problem 11-15 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:
BPC has decided to evaluate the riskier project at a 12% rate and the less risky project at a 8% rate.
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In: Finance
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 | $6,000 | 0.2 | $ 0 |
| 0.6 | 6,750 | 0.6 | 6,750 |
| 0.2 | 8,000 | 0.2 | 19,000 |
BPC has decided to evaluate the riskier project at a 11% rate and the less risky project at a 9% rate.
| Project A | Project B | |
| Net cash flow | $ | $ |
| σ (to the nearest whole number) | CV (to 2 decimal places) | |
| Project A | $ | |
| Project B | $ |
| Project A | $ | |
| Project B | $ |
In: Finance