Question: I am working on the below problem: Problem 11-15 Risky Cash Flows The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each
I am working on the below problem:
Problem 11-15 Risky Cash Flows
The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,500 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 | $7,000 | 0.2 | $ 0 |
| 0.6 | 6,750 | 0.6 | 6,750 |
| 0.2 | 8,000 | 0.2 | 20,000 |
BPC has decided to evaluate the riskier project at a 12% rate and the less risky project at a 8% 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.
What is the coefficient of variation (CV)? Do not round intermediate calculations. (Hint: B=$6,522 and CVB=$0.81.)Project A Project B Net cash flow $ 7050 $ 8050 (to the nearest whole number) CV (to 2 decimal places) Project A $ 485 .07 Project B $ 6522 .01 - 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 $
I know my answers to part A are correct but calculations for risk-adjusted NPV are wrong. Here's how I am calculating it. What I am doing wrong?
My equation for NPV =
Project A = NPV(.08, SUM:Year 0 - Year 3 cash flows)+-7500
Project B = NPV(.12, SUM:Year 0- Year 3 cash flows) + -7500
| Rate A | 8% | |||||
| Rate B | 12% | |||||
| 0 | 1 | 2 | 3 | NPV | ||
| Project A | -7,500 | 7,000.0 | 6,750.0 | 8,000.0 | 11,119 | |
| Project B | -7,500 | 0.0 | 6,750.0 | 20,000.0 | 12,117 |
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