Casablanca Catering, Inc , is considering two mutually exclusive investments The company wishes to use a risk shy adjusted discount rate (RADR) in its analysis Casablanca 's cost of capital (similar to the market return in CAPM) is 12 percent, and the current risk shy free rate of return is 7 perce...

a r X 7 1212 7 7 6 13 r Y 7 1412 7 7 7 14 NPV X 30000PVIF ...

Casablanca Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a riskadjusted discount

Question:

Casablanca Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a riskadjusted (RADR) in its analysis. Casablanca's (similar to the market return in CAPM) is 12 percent, and the current riskfree rate of return is 7 percent. Cash flows associated with the two projects are shown in the following table.

a. Use a risk-adjusted discount rate approach to calculate the net present value of each project, given that project X has a RADR factor of 1.20 and project Y has a RADR factor of 1.40. The RADR factors are similar to project betas. (Use Equation 10.5 to calculate the required project return for each.)
b. Discuss your findings in part a, and recommend the preferred project.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...