Fratice. 1 Project risk analysis D Costs, Projects A and B Expected life of projects (in years) Difference between Project A CFS 57,000.00 3 5500.00 Project A : \begin{tabular}{|c|r|} \hline Probability & Cash Flows \\ \hline 0.2 & $6,500.00 \\ 0.6 & $7,000.00 \\ \hline 0.2 & $7,500.00 \\ \hline \end{tabular} Project 8 . \begin{tabular}{cr} \hline Probability & Cash Flows \\ \hline 0.2 & $0.00 \\ 0.6 & $7,000.00 \\ 0.2 & $17,000.00 \end{tabular} Discount rate, risky project Discount rate, less risky project 12.00% 8.00% Calculation of Expected CF, SD and CV: Project A Formulas Expected annual cash flow Standard deviation (SDA) Coefficient of variation (CVN) Project B : Expected annual cash flow Standard deviation (SD8) $9,338.09 FNAA Coefficient of variation (CV0) \#DIV/0! Which project is riskier? Project A risk-adjusted discount rate Project B risk-adjusted discount rate Calculation of Risk-Adjusted NPVs: NPV NPV0 Which project should be chosen? 41 42 44