You are considering two mutually exclusive projects with the following cash flows: Projected cash flows Probabilities

probabilities Project A Project B

Investment required 1.0 $150,000 $180,000

Annual cash flows 0.3 $35,000 $45,000

probabilities of occurrence 0.5 $40,000 $55,000

for each of 5 years 0.2 $50,000 $67,000

a) Compute the mean and variance of NPW distribution for each project, using i = 12%. Assume project cash flows are mutually independent. Based on just the means (return) and variance (risk) alone, does one project dominate the other? Which one should be selected if you are not a risk-averse decision maker?

b) Which project has a higher probability of losing money?