Tobacco Company of America is a very stable billion dollar company with sales growth of about 5 percent per year in good or bad economic conditions.

Tobacco Company of America is a very stable billion dollar company with sales growth of about 5 percent per year in good or bad economic conditions. Because of this stability (a correlation coefficient with the economy of + .3, and a standard deviation of sales of about 5 percent from the mean), Mr. Weed, the vice president of finance, thinks the company could absorb some small risky company that could add quite a bit of return without increasing the company’s risk very much. He is trying to decide which of the two companies he will buy. Tobacco Company of America’s cost of capital is 10 percent. American Micro-Technology (AMT) (cost $75 million) aftertax cash flow for 10 years ($ million) $(1) 3 10 25 31 a.What is the expected cash flow for each company? b.Compute the net present value of each company. c.Compute the variance and standard deviation. d.Which company would you pick, based on net present values? e. would you change your mind if you added the risk dimensions to the problem? Explain.