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:

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.

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

Explanation / Answer

operation and staffing plays big role

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