Question: help! 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



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: BPC has decided to evaluate the riskier project at 11% and the less-risky project at 8%. 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. Open spreadsheet 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 ( B) is $5,464.43 and its coefficient of variation (CVB) is 0.75 . What are the values of (A) and (CVA) ? Round your answers to two decimal places. 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 ( B) is $5,464.43 and its coefficient of variation (CVB) is 0.75 . What are the values of ( A) and (CVA) ? Round your answers to two decimal places. A=$CA= 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 prodduct (GDP), while A's cash flows were positively correlated, would that influence your risk assessment? Discount rate, less risky project 8.00%B Calculation of Expected CF, SD and CV: Formulas Project A: Expected annual cash flow Standard deviation (SDA) Coefficient of variation (CVA) \#N/A Project B: Expected annual cash flow Standard deviation (SDB) $9,118.66 Coefficient of variation (CVB) \#DIVIOI Which project is riskier? Project A risk-adjusted discount rate Project B risk-adjusted discount rate (2) Calculation of Risk-Adjusted NPVs: NPV NPVB Which project should be chosen
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
