A firm is considering investment in a capital project which is described below. The firms cost of capital is 18 percent and the risk-free rate is 6 percent. The project has a risk index of 1.5. The firm uses the following equation to determine the risk adjusted discount rate, RADR, for each project: RADR = Rf + Risk Index (Cost of capital Rf)

Initial Investment $1,000,000

Year Cash Inflow

1 $500,000

2 500,000

3 500,000

Question:

The net present value (NPV) of the project when adjusting for risk is?

A) -9500

B) 0

C) 87000

D) 105000