Project risk analysis The Butler-Perkins Company (BPC) must decide between two m

Question

Project risk analysis

The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,750 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:

BPC has decided to evaluate the riskier project at 13% and the less-risky project at 8%.

Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $6,500 0.2 $0   0.6 $6,750 0.6 $6,750   0.2 $7,000 0.2 $19,000  

Explanation / Answer

1)

0.2*6500 + 0.6*6750 +0.2*7000 = $6750

0.2*0 + 0.6*6750 + 0.2*19000 = $ 7850

2) Question not clear

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