Question: You are considering two mutually exclusive projects & you want to use a risk adjusted rate (RADR) to help make your decision. Here is what

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 CAPM) is 12%
Risk free rate (Rf) is 7%

Cash flows for each of your two projects are as follows

Project AlphaProject Beta

Initial investment$70,000$78,000

Inflows Year 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)1.21.4

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

Which project will you go forward with?

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