Each project will cost $70,000 and have an expected life of five

years. The CFO has estimated the probability distributions for each

project’s cash flows as shown in the following table.

Probability Project 1 Project 2

25% $15,000 $12,000

50% 25,000 30,000

25% 35,000 48,000

The company believes that the probability distributions apply to each year of the five years of

the projects’ lives. Ormsbee Aviation uses the risk-adjusted discount rate technique to evaluate

potential investments. As a guide for assigning the risk premiums, the CFO has put together the

following table based on the coefficient of variation.

Coefficient of Variation Risk Premium

0.00 -2.00%

0.20 0.00%

0.30 2.00%

0.40 3.00%

0.50 4.00%

. Using the appropriate discount rates, calculate the payback period, discounted payback period, NPV, PI, IRR, and MIRR for each project

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## This question was asked on Oct 30, 2011 and answered on Nov 02, 2011.

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