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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Project A BUDE Cost $21,000 $17,000 $15,000 $14,000 $4,000 NPV $ 5,000 $ 4,000 $ 2,000 $ 4,000 $-1,000 IRR 11% 16% 12% 17% 9% Risk Level High Average High Low Low Project A BUDE Cost $21,000 $17,000 $15,000 $14,000 $4,000 NPV $ 5,000 $ 4,000 $ 2,000 $ 4,000 $-1,000 IRR 11% 16% 12% 17% 9% Risk Level High Average High Low Low

Answer rating: 100% (QA)

Risk Project Cost NPV IRR Level Adjustment to IRR Adjusted IRR A 21000 5000 11 High 112 9 B 17... View the full answer