Centennial Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a CAPM-type risk adjusted discount rate (RADR) in its analysis. Centennial€™s managers believe that the appropriate market rate of return is 12%, and they observe that the current risk-free rate of return is 7%. 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 an RADR factor of 1.20 and project Y has an RADR factor of 1.40. The RADR factors are similar to project betas.
b. Discuss your findings in part a, and recommend the preferredproject.

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Project X Projct Y Initial investment (CFo) $70,000 $78,000 Ycar (t) Cash inflows (CF) $30,000 30,000 30,000 30,000 $22,000 32,000 38,000 46,000 4