Question: The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $6,750 and has an expected life of 3 years. Annual

The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $6,750 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

BPC has decided to evaluate the riskier project at a 12% rate and the less risky project at a 10% rate.a. What is the expected value of the annual net cash flows from each project? What is the coefficient of variation (CV)?b. What is the risk-adjusted NPV of each project?c. If it were known that Project B is negatively correlated with other cash flows of the firm whereas Project A is positively correlated, how would this affect the decision? If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk?

Project A Net Cash Flows Project B Net Cash Flows Probability Probability 0.2 0.2 S 6,000 6,750 7,500 6,750 18,000 0.6 0.6 0.2 0.2

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a Expected annual cash flows CVA 474346750 00703 CVB 5797847650 07579 b Project B is the riskier pro... View full answer

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