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The Cactus Corporation is considering investing in a project A with a 2-year life. An initial investment of $600 must be made now, and the following real cash inflows with their associated probabilities are expected to begin a year from now:

a. Calculate the project's real expected NPV and standard deviation, assuming the discount rate to be 8 percent.
b. The company is also considering another 2-year project; project B, which has an expected NPV of $320 and a standard deviation of $125. Projects A and B are mutually exclusive. Which of the two projects would you prefer? Explain.

 

Microeconomics, Economics

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