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
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education