Problem: The Singleton Company must decide between two mutually exclusive investment projects. Each project costs $ 6,750 and has an expected life of three years. Annual net cash flows from each project begin one year after the initial investment is made and have the following probability. Distributions:
|
Project A
|
Project B
|
|
Probability
|
Net Cash Flows
|
Probability
|
Net Cash Flows
|
|
0.2
0.6
0.2
|
$6000
6,750
7,500
|
0.2
0.6
0.2
|
$0
6,750
18,000
|
Singleton has decided to evaluate the riskier project at 12% rate and the less risky project at 10% rate.
1. What is the expected value of the annual net cash flows from each project? What is the coefficient of variation (CVnpv)?
2. What is the risk-adjusted NPV of each project?