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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	Net Cash Flows	Probability	Net Cash Flows
0.2	$6,000	0.2	$ 0
0.6	6,750	0.6	6,750
0.2	7,500	0.2	20,000

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 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=$6,522 and CVB=$0.81.)

	(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

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