??After a careful evaluation of investment alternatives and?opportunities, Masters School Supplies has developed a? CAPM-typerelationship linking a risk index to the required return? (RADR),as shown in the table
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The firm is considering two mutually exclusive? projects, A andB. Following are the data the firm has been able to gather aboutthe projects.
| Project A | Project B |
| Initial investment ?(CF 0CF0?) | $ 23 comma 000$23,000 | $ 28 comma 000$28,000 |
Project life | 77 years | 77 years |
| Annualcash inflow ?(CF nbspCF ?) | $ 7 comma 200$7,200 | $ 10 comma 300$10,300 |
Risk index | 0.20.2 | 1.41.4 |
All the? firm's cash flows for each project have already beenadjusted for taxes.
a. Evaluate the projects using ?risk-adjusted discount
rates.
b. Discuss your findings in part
?(a?),
and recommend the preferred project.
a. The net present value for project A is
?$nothing .
???(Round to the nearest? cent.)
Risk index | Required return? (RADR) |
0.0 | 7.5 %7.5% ?(risk-free rate,Upper R Subscript Upper FRF?) |
0.2 | 8.68.6 |
0.4 | 9.79.7 |
0.6 | 10.810.8 |
0.8 | 11.911.9 |
1.0 | 13.013.0 |
1.2 | 14.114.1 |
1.4 | 15.215.2 |
1.6 | 16.316.3 |
1.8 | 17.417.4 |
2.0 | 18.518.5 |
