John Q.Enterprises is considering two potential investments.The probability distributions of annual end-of-year cash flows for the respective projects are:

Both projects will require an initial outlay of $45,000 and will have an estimated life of 6 years.Project A is considered a riskier investment and will have to have a risk-adjusted required rate of return of 15%,while Project B's risk-adjusted required rate of return is 12%.
a.Determine the expected value of each project's annual cash flow.
b.Determine each project's risk-adjusted net present value.

Question

John Q.Enterprises is considering two potential investments.The probability distributions of annual end-of-year cash flows for the respective projects are:
  
Both projects will require an initial outlay of $45,000 and will have an estimated life of 6 years.Project A is considered a riskier investment and will have to have a risk-adjusted required rate of return of 15%,while Project B's risk-adjusted required rate of return is 12%.
a.Determine the expected value of each project's annual cash flow.
b.Determine each project's risk-adjusted net present value.

Quizplus · Accepted Answer

The Answer of John Q.Enterprises is considering two potential investments.The probability distributions of annual end-of-year cash flows for the respective projects are:
  
Both projects will require an initial outlay of $45,000 and will have an estimated life of 6 years.Project A is considered a riskier investment and will have to have a risk-adjusted required rate of return of 15%,while Project B's risk-adjusted required rate of return is 12%.
a.Determine the expected value of each project's annual cash flow.
b.Determine each project's risk-adjusted net present value.

John QEnterprises Is Considering Two Potential Investments