Question: Please use excel only to solve. Please show all formulas. Thank you very much. Country Wallpapers is considering investing in one of three mutually exclusive
Please use excel only to solve. Please show all formulas. Thank you very much.
Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F and G. The firm's cost of capital, r, is 15%, and the risk free rate (Rf) is 10%.
The firm has gathered the following basic cash flow and risk index data for each project. Initial Investments for projects is listed after the project letter
| Year | Project E: -$15,000 | Project F: -$11,000 | Project G: $-19,000 |
| 1 | 6,000 | 6,000 | 4,000 |
| 2 | 6,000 | 4,000 | 6,000 |
| 3 | 6,000 | 5,000 | 8,000 |
| 4 | 6,000 | 2,000 | 12,000 |
| Risk Index | 1.80 | 1.00 | 0.60 |
a -Find the net present value (NPV) of each project using the firm's cost of capital. Which project is preferred in this situation?
b -The firm uses the following equation to determine the risk-adjusted discount rate, RADR for each project: where RADR = Rf + [Ri x (r-Rf)] Substitute each project's risk index into this equation to determine its RADR.
c -Use RADR for each project to determine its risk adjusted NPV. Which project is preferable in this situation?
d -Compare and discuss your findings in parts a and c. Which project do you recommend that the firm accept?
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