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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 PC has decided to evaluate the riskier project at an 11% rate and the less risky project at a 10% rate. a. 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 A $ Yes 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. $ o $ Net cash flow * $ Ⓡ What is the coefficient of variation (CV)? (Hint: op $4,757.63 and CVB $0.67.) Do not round intermediate calculations. Round a values to the nearest cent and CV values to two decimal places. Project B * * Ⓡ Probability 0.2 0.6 0.2 CV Cash Flows $7,000 6,750 7.500 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 accept V Project B. If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk? Probability 0.2 0.6 0.2 Cash Flows $ 0 6.750 15.000

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 PC has decided to evaluate the riskier project at an 11% rate and the less risky project at a 10% rate. a. 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 A $ Yes 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. $ o $ Net cash flow * $ Ⓡ What is the coefficient of variation (CV)? (Hint: op $4,757.63 and CVB $0.67.) Do not round intermediate calculations. Round a values to the nearest cent and CV values to two decimal places. Project B * * Ⓡ Probability 0.2 0.6 0.2 CV Cash Flows $7,000 6,750 7.500 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 accept V Project B. If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk? Probability 0.2 0.6 0.2 Cash Flows $ 0 6.750 15.000

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
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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 B Project A Cash Flows Project A: $ Yes $ σ $ Project A Project B $ b. What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent. x X * $ CV BPC has decided to evaluate the riskier project at an 11% rate and the less risky project at a 10% rate. a. 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 X Net cash flow $ What is the coefficient of variation (CV)? (Hint: OB-$4,757.63 and CVB=$0.67.) Do not round intermediate calculations. Round a values to the nearest cent and CV values to two decimal places. X Probability 0.2 0.6 0.2 $7,000 6,750 7,500 Project B: * c. 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 accept Project B. If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk? Probability 0.2 0.6 0.2 Cash Flows $ 0 6,750 15,000
Transcribed Image Text: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 B Project A Cash Flows Project A: $ Yes $ σ $ Project A Project B $ b. What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent. x X * $ CV BPC has decided to evaluate the riskier project at an 11% rate and the less risky project at a 10% rate. a. 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 X Net cash flow $ What is the coefficient of variation (CV)? (Hint: OB-$4,757.63 and CVB=$0.67.) Do not round intermediate calculations. Round a values to the nearest cent and CV values to two decimal places. X Probability 0.2 0.6 0.2 $7,000 6,750 7,500 Project B: * c. 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 accept Project B. If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk? Probability 0.2 0.6 0.2 Cash Flows $ 0 6,750 15,000
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