Risk-Adjusted NPV and Decision. Vilas Corporation is considering two mutually exclusive projects, both of which require an initial investment of $4,500 and an expected life of 10 years. The...

Risk-Adjusted NPV and Decision. Vilas Corporation is considering two mutually exclusive projects, both of which require an initial investment of $4,500 and an expected life of 10 years. The probability distribution for the cash inflows are as follows (for years 1 through 10):

Project                                 A Project B

Cash Inflow        Probability        Cash Inflow       Probability

$700       0.10       $ 550      0.2

900         0.80       800         0.3

1,000     0.10       1,000     0.3

1,400     0.2

The company has decided that the project with higher relative risk should have a required rate of return of 16 percent, whereas the less risky project’s required rate of return should be 14 percent.

Compute (a) the coefficient of variation as a measure of relative risk, and (b) the risk-adjusted NPV of each project. Which project should be chosen? (c) What factors other than NPV should be considered when deciding between these two projects?