Your company has asked you to analyze two mutually exclusive projects for the co

Question

Your company has asked you to analyze two mutually exclusive projects for the coming year. Project A will have an initial outlay of $7,200. Project B will cost $6,800. Both projects will last for three years. On the basis of the information regarding the risk involved in the two projects, you came up with the following probability distributions for the projects: Project A Project B Probability Net Cash Flows ($) Probability Net Cash Flows ($) 0.3 8,100 0.3 500 0.5 9,100 0.5 8,100 0.2 10,500 0.2 16,500 To evaluate the two projects, you decide to use the company's weighted average cost of capital (WACC) for the less risky project (11 percent) and the WACC plus two points (13 percent) for the more risky project.

Explanation / Answer

In this stage the project manager defines what the project is and what the users hope to achieve by undertaking the project. This phase also includes a list of project deliverables, the outcome of a specific set of activities. The project manager works with the business sponsor or manager who wants to have the project implemented and other stakeholders -- those who have a vested interest in the outcome of the project.

Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. This ratio is considered one of the indicators of the ability to pay bills in a timely fashion, though it is not the only measure.

“Current” is the descriptive used for short turnaround assets and liabilities. Accounts receivable and payable…inventory…cash on hand are all examples of items that would be used in the current ratio.

A. Coefficient of Variation = 1329.52/9080 = 0.1464
B. Coefficient of Variation = 2204.73/7500 = 0.2939

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