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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 $5,750 0.2 $0 0.6 $6,500 0.6 $6,500 0.2 $7,250 0.2 $19,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 9%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X Open spreadsheet a. What is each project's expected annual cash flow? Round your answers to two decimal places. Project A: $ Project B: $ 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 (OB) is $6,185.47 and its coefficient of variation (CVB) is 0.80. What are the values of (a) and (CVA)? Round your answers to two decimal places. A = $ 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? Excel template - Saved Search Option) Single Line Ribbon Sign in (8 File Home Insert Formulas Data Review View Help Editing Comments Arial V 10 B Av =V Currency DO 03 -> P B24 fi B D E F H I ] K L M N $6,500.00 3 S750.00 Cash Flows $5,750.00 $6,500.00 $7.250.00 A 1 Project risk analysis 2 3 Costs, Projects A and B 4 Expected life of projects (In years) 5 Difference between Project A CFS 6 7 Proloc! A: 8 Probability 9 0.2 10 0.6 11 0.2 12 13 Project B: 14 Probability 15 0.2 16 0.6 17 0.2 18 19 Discount rate, risky project 20 Discount rate, loss risky project 21 22 Calculation of Expected CF, SD and CV: 23 Project A: 24 Expected annual cash flow 25 Standard deviation (SDA) 26 Coefficient of variation (CVA) 27 28 Project: Sheet1 + Cash Flows $0.00 $6,500.00 $19,000.00 11.00% 9.00% % Formulas #N/A #N/A #N/A Calculation Mode: Automatic Workbook Statistics Give Feedback to Microsoft 100% + Excel template - Saved v O Search (Option + Q) Single Line Ribbon Sign in (& File Home Insert Formulas Data Review View Help O Editing Comments Arial V10 B V so v Av Currency 40 .00 .00 .0 B24 fx A B D E G H I J K L M N C #N/A $9,876.74 #DIV/0! 28 Project B: 29 Expected annual cash flow 30 Standard deviation (SDB) 31 Coefficient of variation (CVB) 32 33 Which project is riskier? 34 Project A risk-adjusted discount rate 35 Project B risk-adjusted discount rate 36 37 Calculation of Risk-Adjusted NPVs: 38 NPVA 39 NPVB 40 Which project should be chosen? 41 #N/A #N/A #N/A #N/A #N/A #N/A

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