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Calculate the expected value and standard deviation

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Deluxe Hotel Limited must decide between two mutually exclusive projects. Each costs $27,000 and has an expected life of 3 years. Annual projected cash flows begin 1 year after the initial investment and are subject to the following probability distributions:

                                                   Project A                                      Project B

Probability                                Cash flows                               Cash flows

0.3                                           $24,000                              $0

0.4                                          27,000                            27,000

0.3                                      30,000                                   72,000

Deluxe Hotel Limited decided to evaluate the riskier project at 12% and the less-risky project at 10%.

Required:

Question (a) Calculate the expected value, standard deviation and coefficient of variation of the annual cash flows of each project.

Question (b) Base on the risk adjusted NPVs, which project should Deluxe Hotel Limited choose?

Reference no: EM132499694

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