The Wentworth Art School is evaluating a few investment opportunities. It developed a CAPM-type relationship linking a risk index to the required return (RADR), as shown in the following table.

The Wentworth Art School is considering two mutually exclusive projects. The information available is summarized in the following table. All the cash inflows have already been adjusted for taxes.

a. Evaluate the two projects using the risk-adjusted discount rates.
b. Which project should be accepted? Why?

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Risk index 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 Required return (RADR) 6.5% 7.5 8.5 9.5 10.5 11.5 12.5 13.5 14.5 15.5 16.5