Project risk analysis, Project risk analysis The

Project risk analysis

Assignment Help Financial Management

Reference no: EM131583533

Project risk analysis The Butler-Perkins 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: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $6,250 0.2 $0 0.6 $7,000 0.6 $7,000 0.2 $7,750 0.2 $18,000 BPC has decided to evaluate the riskier project at 13% and the less-risky project at 8%. What is each project's expected annual cash flow? Round your answers to two decimal places. Project A. $ Project B. $ Project B's standard deviation (σB) is $5,776 and its coefficient of variation (CVB) is 0.74. What are the values of (σA) and (CVA)? Round your answer to two decimal places. σA = $ CVA = Based on their risk-adjusted NPVs, which project should BPC choose? If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, whereas Project A's flows were positively correlated, how might this affect the decision? If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's flows were positively correlated, would that influence your risk assessment?

Reference no: EM131583533

Questions Cloud

Basic bond valuation : If bonds of similar risk are currently earning a rate of return of 8?%, how much should the Complex Systems bond sell for? today?

Bond prices and yields : Assume that the Financial Management? Corporation's $1,000?-par-value bond has a 7.900% ?coupon, What is the dollar price of the? bond?

When a firm pays dividend to shareholders : When a firm pays a dividend to shareholders, 'how' does the firm go about determining both 'if' a dividend payment is to be made,

How much is the firm worth if the risk-free rate : How much is the firm worth if the risk-free rate is 5% and the expected rate of return on the market portfolio is 10%?

Project risk analysis : Project risk analysis The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects.

Calculate the expected expectations yield : Calculate the expected expectations yield for a (3,2,1,2) path. Determine the expectations yield on a 5-year note purchased today.

The world economy when us economy is their responsibility : Do you think the Fed should be responsible for the world economy when the US economy is their responsibility?

What is the expected rate or return for security : what is the expected rate or return for Security B?

New project analysis-evaluate proposed spectrometer : You must evaluate a proposed spectrometer for the R&D department. If the WACC is 13%, should the spectrometer be purchased?

User Account

All Pages