Problem 2:

The San Diego LLC is considering a three-year project, Project A,
involving an initial investment of $80 million and the following cash
inflows and probabilities:

BUS640 week 1, problem 2 chart

Describe your answer for each question in complete sentences,
whenever it is necessary. Show all of your calculations and processes
for the following points:

  1. Describe and calculate Project A’s expected net present value
    (ENPV) and standard deviation (SD), assuming the discount rate (or
    risk-free interest rate) to be 8%. What is the decision rule in terms of
    ENPV? What will be San Diego LLC’s decision regarding this project?
    Describe your answer.
  2. The company is also considering another three-year project,
    Project B, which has an ENPV of $32 million and standard deviation of
    $10.5 million. Project A and B are mutually exclusive. Which of the two
    projects would you prefer if you do not consider the risk factor?
  3. Describe the coefficient of variation (CV) and the standard
    deviation (SD) in connection with risk attitudes and decision making. If
    you now also consider your risk-aversion attitude, as the CEO of the
    San Diego LLC will you make a different decision between Project A and
    Project B? Why or why not?