Question

The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $6,000 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 CashFlows |
Probability |
Net CashFlows |

0.2 | $5,000 | 0.2 | $ 0 |

0.6 | 6,750 | 0.6 | 6,750 |

0.2 | 8,000 | 0.2 | 21,000 |

BPC has decided to evaluate the riskier project at a 13% rate and the less risky project at a 9% 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:*σ_{B}=$6,890 and CV_{B}=$0.84.)**σ (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 $

Answer #1

1.

Net cash flow of A=0.2*5000+0.6*6750+0.2*8000=6650

2.

Net cash flow of B=0.2*0+0.6*6750+0.2*21000=8250

3.

Standard deviation of
A=sqrt(0.2*(5000-6650)^2+0.6*(6750-6650)^2+0.2*(8000-6650)^2)

=956.5563235

4.

CV of A=956.5563235/6650=0.143843056

5.

Standard deviation of
B=sqrt(0.2*(0-8250)^2+0.6*(6750-8250)^2+0.2*(21000-8250)^2)=6890.210447

6.

CV of B=6890.210447/8250=0.835177024

7.

NPV of A=-6000+6650/9%*(1-1/1.09^3)=10833.10953

8.

NPV of B=-6000+8250/13%*(1-1/1.13^3)=13479.50893

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
Cash Flows
Probability
Cash Flows
0.2
$5,000
0.2
$ 0
0.6
6,750
0.6
6,750
0.2
7,000
0.2
20,000
BPC has decided to evaluate the riskier project at an 11% rate...

Risky Cash Flows
The Bartram-Pulley Company (BPC) must decide between two
mutually exclusive investment projects. Each project costs $6,000
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
$6,000
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...

eBook
The Butler-Perkins Company (BPC) must decide between two
mutually exclusive projects. Each project has an initial outflow of
$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
$6,250
0.2
$ 0
0.6
7,000
0.6
7,000
0.2
7,750
0.2
17,000
BPC has decided to evaluate the riskier project at 12% and...

The Butler-Perkins Company (BPC) must decide between two
mutually exclusive projects. Each project has an initial outflow of
$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
$6,750
0.2
$ 0
0.6
7,000
0.6
7,000
0.2
7,250
0.2
17,000
BPC has decided to evaluate the riskier project at 11% and the...

ch 12
The Butler-Perkins Company (BPC) must decide between two
mutually exclusive projects. Each project has an initial outflow of
$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
19,000
BPC has decided to evaluate the riskier project at 13%...

The Butler-Perkins Company (BPC) must decide between two
mutually exclusive projects. Each costs $6,500 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 $6,500 0.6
$6,500
0.2 $7,000 0.2
$17,000
BPC has decided to evaluate the riskier project at 11% and the
less-risky project at 9%.
QA....

I am working on the below problem:
Problem 11-15
Risky Cash Flows
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:
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...

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Your division is considering two investment projects, each of
which requires an up-front expenditure of $15 million. You estimate
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Year
Project A
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1
$ 5,000,000
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2
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3
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