RGL is s considering two mutually exclusive proposals both having an initial outlay of $900,000. The proposals denoted A and B have uncertain cash inflows depending upon market conditions. There are four possible market scenarios having probabilities of 20%, 40, 20% and 20%The cash inflows of A and B under four possible market conditions are forecast as follows:

The firm recognizes the fact that the project appraisal must take into account theriskiness of the cash flows. To objectively decide upon the appropriate discount rate the management of RGL has devised a formula for arriving forat the Risk Adjusted Discount Rate(RADR) based on the coefficient of variation (CV) as follows: RADR= 8%+CVx25%

Required:

Assuming that each proposal lasts for five years and RADR is used to evaluate the proposals which one would you prefer and why?

RGL is s considering two mutually exclusive proposals both having an initial outlay of $900,000. The proposals denoted A and B have uncertain cash inflows depending upon market conditions. There are four possible market scenarios having probabilities of 20%, 40, 20% and 20%The cash inflows of A and B under four possible market conditions are forecast as follows: Market Scenario Probability I II III IV 0.2 0.4 0.2 0.2 Cash Flows in $ 000 A 200 250 280 300 B 220 240 265 280 The firm recognizes the fact that the project appraisal must take into account the riskiness of the cash flows. To objectively decide upon the appropriate discount rate the management of RGL has devised a formula for arriving for at the Risk Adjusted Discount Rate(RADR) based on the coefficient of variation (CV) as follows: RADR= 8%+CVx25% Required: Assuming that each proposal lasts for five years and RADR is used to evaluate the proposals which one would you prefer and why