What is the risk-adjusted npv for each project

Reference no: EM13241566

Project A
Probability, Net Cash Flows ($)
0.2, 8,100
0.5, 9,100
0.3, 10,500

Project B
Probability, Net Cash Flows ($)
0.2 500
0.5 8,100
0.3 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 (12 percent) and the WACC plus two points (14 percent) for the more risky project.

Project A will have an initial outlay of $7,200. Project B will cost $6,800. Both projects will last for three years.

What is the expected value for each project? What does this value represent?

What is the coefficient of variation for each project? What information does this measure provide to you and to the company?

Which project has the most risk? Why?

What is the risk-adjusted NPV for each project? What do these measures tell you and the company?

If these two projects were not mutually exclusive, would you select both? Why or why not?

Reference no: EM13241566

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