Question: Chapter 12 -- Project Risk Analysis PROBLEM 7 Virus Stopper Inc., a supplier of computer safeguard systems, uses a cost of capital of 12 percent

Chapter 12 -- Project Risk AnalysisPROBLEM 7Virus Stopper Inc., a supplier
Chapter 12 -- Project Risk Analysis
PROBLEM 7
Virus Stopper Inc., a supplier of computer safeguard systems, uses a cost of capital of 12 percent
to evaluate average-risk projects, and it adds or subtracts 2 percentage points to evaluate projects
of more or less risk. Currently, two mutually exclusive projects are under consideration. Both
have a cost of $200,000 and will last four years. Project A, a riskier-than-average project, will
produce annual end-of-year cash flows of $71,104. Project B, of less than average risk, will
produce cash flows of $146,411 at the end of Years 3 and 4 only. Which project should Virus
Stopper accept?
ANSWER

Here are the cash flows of both projects:

of computer safeguard systems, uses a cost of capital of 12 percentto

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