Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for ADM is 15 percent.

Project A: Server CPU .13 micron processing project By shrinking the die size to .13 micron, ADM will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPUs.

Project B: New telecom chip project Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a large amount of up-front capital, but success of the project will lead to large cash flows later on.

Year Project A Project B

0 -$750,000 -$950,000

1 350,000 260,000

2 350,000 350,000

3 270,000 360,000

4 195,000 400,000

5 120,000 500,000

What is the required return?