Question: The BP Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 and has an expected life of 3 years. Annual project cash
The BP Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 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:
| Probability | Project A Cashflows | Project B Cashflows |
| 0.2 | $6,750 | $0 |
| 0.6 | 7,000 | 7,000 |
| 0.2 | 7,250 | 17,000 |
BPC has decided to evaluate the riskier project at 11% and the less-risky project at 9%.
A. What is each project's expected annual cash flow? Round your answers to two decimal places.
Project A $Blank 1
Project B $Blank 2
B. Project B's standard deviation (B) is $5,426 and its coefficient of variation (CVB) is 0.71. What are the values of (A) and (CVA)? Round your answer to two decimal places.
A = $Blank 3
CVA = Blank 4
C. Based on the risk-adjusted NPVs, which project should BPC choose? Blank 5 (A/B)
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