Question: Problem 4. Risk-adjusted discount rates a. Project A Upfront project cost = $20,000 Number of years = 5 Cost of capital = 8% (risk index

Problem 4. Risk-adjusted discount rates

a. Project A

Upfront project cost = $20,000

Number of years = 5

Cost of capital = 8% (risk index = 2)

Cash inflows = $7,000

Solve for PV = $______________

NPV = Present value of cash inflows Upfront cost

Solve for NPV = $___________________

Project B Upfront project cost = $30,000

Number of years = 5 Cost of capital = 14% (risk index = 1.4)

Cash inflows = $10,000

NPV = PV of cash inflows Upfront cost

Solve for PV = $______________

NPV = $__________________________

b. Which project is preferred (circle one) NPVA or NPVB?

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