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An investment project has the following forecasted cash flows in millions of dollars: Cash Flows C0 C1 C2 C3 -120 +40 +60 +50 The projects

An investment project has the following forecasted cash flows in millions of dollars:

Cash Flows

C0 C1 C2 C3
-120 +40 +60 +50

The projects estimated beta is 1.5; the expected return on the market is .12; and the risk- free rate of return is .04.

A. Estimate the opportunity cost of capital (i.e., risk-adjusted discount rate). Explain.

B. Find the projects net present value (adjusted for risk) by using the same discount rate to discount each cash flow. Should the project be adopted? Explain.

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