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Singleton Company: Project Cash Flows and Risk

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The Singleton Company must decide between two mutually exclusive investment projects. Each project costs $ 6,750 and has an expected life of three years. Annual net cash flows from each project begin one year after the initial investment is made and have the following probability.

Please view attachment for Project A & B

Singleton has decided to evaluate the riskier project at 12% rate and the less risky project at 10% rate.

a. What is the expected value of the annual net cash flows from each project?
What is the coefficient of variation (CVnpv)?

b. What is the risk-adjusted NPV of each project?

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The solution shows all the formulas and calculations to arrive at the answers to the questions. There is narrative explanation as well.

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a) To get the expected cash flows from a set of probable cash flows, multiply each probability/cash flow pair and sum the results.

For project A

.2*$6000+.6*$6750+.2*7500=6750

For project B

.2*0+.6*$6750+.2*$18000=7650

The coefficient of variation measures the relative ...

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