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A firm is considering investment in a capital project which is described below. The firm's cost of capital is 18 percent and the risk-free rate
A firm is considering investment in a capital project which is described below. The firm's 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)
The initial investment is $1,000,000 and the cash inflows for years 1-3 are $500,000 each. What is the NPV when adjusted for risk?
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