Docs R Us has performed a risk assessment of independent projects. They adjust for project risk by
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Docs R Us has performed a risk assessment of independent projects. They adjust for project risk by raising the calculated IRR by 3% for low risk projects, leaving the IRR the same for moderate risk projects, and lowering the calculated IRR by 2% for high risk projects. Without capital rationing, and given their cost of capital of 11%, which projects should Meds R Us accept? Why?
Note: You will add 3% to the Project's IRR if it is low risk (making it look more favorable since it is), leave Average risk Projects' IRRs the same, and subtract 2% from the IRR for high risk Projects (making them less favorable since they are due to the risk).
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