After a careful evaluation of investment alternatives and opportunities, Masters School Supplies has developed a CAPM-type relationship linking a risk index to the required return (RADR), as shown in the following table.
Risk index Required return (RADR)
0.0 ........ 7.0% (risk-free rate, RF)
0.2 ................... 8.0
0.4 ................... 9.0
0.6 ................. 10.0
0.8 ................. 11.0
1.0 .................. 12.0
1.2 .................. 13.0
1.4 .................. 14.0
1.6 ................. 15.0
1.8 ................. 16.0
2.0 ................. 17.0
The firm is considering two mutually exclusive projects, A and B. Following are the data the firm has been able to gather about the projects.

All the firm€™s cash inflows have already been adjusted for taxes.
a. Evaluate the projects using risk-adjusted discount rates.
b. Discuss your findings in part a, and recommend the preferredproject.

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Initial investment (CFo) Project life Annual cash inflow (CF) Risk index Project A Pct B $20,000 5 years $7,000 ojcct $30,000 5 ycars $10,000 1.4 0.2