a. 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 (GB) is $6,131.88 and its coefficient of variation (CVB) is 0.77. What are the values of (GA) and (CVA)? Round your answers to two decimal places. σA = $ CVA = b. Based on the risk-adjusted NPVs, which project should BPC choose? c. 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? 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?
a. 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 (GB) is $6,131.88 and its coefficient of variation (CVB) is 0.77. What are the values of (GA) and (CVA)? Round your answers to two decimal places. σA = $ CVA = b. Based on the risk-adjusted NPVs, which project should BPC choose? c. 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? 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?
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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