Question: Question 1 Melawati Berhad is considering two mutually exclusive projects, Project Red and Project Blue. Both projects requires an initial outlay of RM 100,000.00. These

Question 1

Melawati Berhad is considering two mutually exclusive projects, Project Red and Project Blue. Both projects requires an initial outlay of RM 100,000.00. These projects have different levels of risk, and the company has decided to use a minimum rate of return of 12% for the less risky project and 16% for the higher risk project. Both projects have a 5-year expected useful life and have the following probability distributions and cash flows.

Project Red		Project Blue
Probability	Annual After-tax Cash Flows (RM)	Probability	Annual After-tax Cash Flows(RM)
0.1	30,000.00	0.1	25,000.00
0.4	40,000.00	0.2	50,000.00
0.4	35,000.00	0.4	20,000.00
0.1	25,000.00	0.3	40,000.00

a) Calculate the following for each project:

Expected annual after-tax cash flows
Standard deviation
Coefficient of variation

b) Which project is riskier? Why?

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