Answer:
a. The project A's expected annual cash flow is $7,000
The project B's expected annual cash flow is $7,600
b. BPC should choose the project b
Explanation:
a. In order to calcualte the project A's expected annual cash flow we would have to make the following calculation:
project A's expected annual cash flow =0.2*$6,250 +0.6 *$7,000+0.2 *$7,750=$7,000
In order to calcualte the project B's expected annual cash flow we would have to make the following calculation:
project B's expected annual cash flow =0.2*$0 +0.6 *$7,000+0.2 *$17,000 =$7,600
b. Becuase Project B's CV is higher , hence Project B has the higher NPV, thus, the firm should accept Project B.
