Question

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	0.2	20,000

BPC has decided to evaluate the riskier project at a 12% rate and the less risky project at a 8% rate.

1. 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	$ 7050	$ 8050

   
   What is the coefficient of variation (CV)? Do not round intermediate calculations. (Hint: σ_B=$6,522 and CV_B=$0.81.)

   	σ (to the nearest whole number)	CV (to 2 decimal places)
   Project A	$ 485	.07
   Project B	$ 6522	.01

2. 
   
3. 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		$

I know my answers to part A are correct but calculations for risk-adjusted NPV are wrong. Here's how I am calculating it. What I am doing wrong?

My equation for NPV =

Project A = NPV(.08, SUM:Year 0 - Year 3 cash flows)+-7500

Project B = NPV(.12, SUM:Year 0- Year 3 cash flows) + -7500

Rate A	8%
Rate B	12%
	0	1	2	3		NPV
Project A	-7,500	7,000.0	6,750.0	8,000.0		11,119
Project B	-7,500	0.0	6,750.0	20,000.0		12,117

Answer 1

Since B has an higher Standard deviation its is a riskier project and hence it is discounted at 12% and the other at 8%