A firm is considering investment in a capital project which is described below. The firms cost of
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Question:
A firm is considering investment in a capital project which is described below. The firm’s cost of capital is 18 percent and the risk-free rate is 6 percent. The project has a risk index of 1.5. The firm uses the following equation to determine the risk adjusted discount rate, RADR, for each project: RADR = Rf + Risk Index (Cost of capital – Rf)
Initial Investment $1,000,000
Year Cash Inflow
1 $500,000
2 500,000
3 500,000
Question:
The net present value (NPV) of the project when adjusting for risk is?
A) -9500
B) 0
C) 87000
D) 105000
Related Book For
Fundamentals of Financial Accounting
ISBN: 978-0078025914
5th edition
Authors: Fred Phillips, Robert Libby, Patricia Libby
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