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Your company has asked you to analyze two mutually exclusive projects for the coming year. Project A will have an initial outlay of $7,200. Project B will cost $6,800. Both projects will last for three years. On the basis of the information regarding the risk involved in the two projects, you came up with the following probability distributions for the projects: Project A Project B Probability Net Cash Flows ($) Probability Net Cash Flows ($) 0.3 8,100 0.3 500 0.5 9,100 0.5 8,100 0.2 10,500 0.2 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 (11 percent) and the WACC plus two points (13 percent) for the more risky project.

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

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9605963

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