Question: Considering two mutually exclusive projects & using a risk adjusted rate (RADR) to help make decision. We know: Cost of capital (call this the market

Considering two mutually exclusive projects & using a risk adjusted rate (RADR) to help make decision.

We know:

Cost of capital (call this the market return (Rm) in CAPM) is 12%

Risk free rate (Rf) is 7%

Cash flows for each projects:

Project One Project Two

Initial investment $70,000$78,000

InflowsYear 1$30,000$22,000

Year 2$30,000$32,000

Year 3$30,000$38,000

Year 4$30,000$46,000

Risk factor (b) 1.2 1.4

1) Use a risk adjusted interest rate (RADR) to calculate the NPV of each project

2) Which project will you go forward with?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Problem #5 (8 points) You are considering two mutually exclusive projects & you want to use a risk adjusted rate (RADR) to help make your decision. Here is what we know 1. Cost of capital (call this...

Q:

You are considering two mutually exclusive projects & you want to use a risk adjusted rate (RADR) to help make your decision. Here is what we know Cost of capital (call this the market return (Rm) in...

Q:

You are considering two mutually exclusive projects & you want to use a risk adjusted rate (RADR) to help make your decision. Here is what we know Cost of capital (call this the market return (Rm) in...

Q:

Problem #5 (8 points) You are considering two mutually exclusive projects & you want to use a risk adjusted rate (RADR) to help make your decision. Here is what we know 1. Cost of capital (call this...

Q:

1) A project has a net present value of zero. Given this information: A) the project has a zero percent rate of return. B) the project requires no initial cash investment. C) the project has no cash...

Q:

Answer question 1 & 2 Question 1 You recently went to work for Jurong Parts Limited, a company listed on Catalist, which supplies auto repair parts used in the after-market automobiles like Nissan,...

Q:

Hoyt, Inc. has estimated current year sales (in millions) for the next four quarters. Q1 $240Q2 $250 Q3 $205 Q4 $350 ? Sales for the 1st quarter next year are projected to be $230.? Accounts...

Q:

Hi everyone. Can someone please help me to help me to answer the questions below from my finance 101 midterm exam? Q1. Jiffy Co. expects to pay a dividend of $3.00 per share in one year. The current...

Q:

I have some questions I would like help with. They are from my Finance 101 class. Can someone please help me? Q1. Jiffy Co. expects to pay a dividend of $3.00 per share in one year. The current price...

Q:

Financial Management (ACC-933 - Fall 2022) Assignment # 2 (Due on or before 22 November2022) Mini Case # 1 (Investment Decisions - Risk Adjusted Discount Rates) (10 Marks) CBA company is considering...

Q:

BIG INC rewards its managers on (before tax) Return on Assets (ROA). BIG INC has revenues of $100m, and expenses (including interest expense) of $82m. Total assets are $90m. BIG INCs weighted average...

Q:

What happens when D-glucose is treated with the following reagents? (i) HI (ii) Bromine water (iii) HNO,

Q:

Tax benefits from investing in oil and gas may be reduced by limitations on the depletion of oil and gas deductions. Question 17 options: True False

Q:

A hula hoop and solid disc of equal radii are rolled, from rest and without slipping, down an incline plane. Which one will reach the bottom of the inclined plane first? Explain.

Q:

If you were an employer, would you require either employees or job applicants to pass an honesty exam? Explain the moral principles that support your position. At Christmas time, holiday shoppers dro...

Q:

Utilitarians would not find anything inherently objectionable about psychological tests as long as the interests of all parties were taken into account and given equal consideration before such tests...

Q:

What do you think a businesss reaction would be if the government required its executive officers to submit to an honesty test as a precondition for the companys getting a government contract? If, in...