Bell Manufacturing is considering investment in one of two mutually exclusive projects X and Y which are described below. Bell Manufacturing's overall cost of capital is 15 percent, the market return is 14 percent and the risk-free rate is 3 percent. Bell estimates that the beta for project X is 1.40 and the beta for project Y is 1.80.

	Project X	Project
Initial Investment	$3,500.000	$3,900.000
Year	Cash Inflows	Cash Inflows
1	1,500.000	1,100.000
2	1,500.000	1,600.000
3	1,500.000	1,900.000
4	1,500,000	2,300.000

Please show the formula and work for the below:

24.Calculate the risk-adjusted discount rates for project X and project Y using CAPM

25. Using the risk-adjusted discount rate method of project evaluation, find the NPV for projects X and Y. Which project should Bell select using this method?

26. Calculate the NPV of projects X and Y assuming that the firm did not employ the RADR method and instead used the firm's overall cost of capital to evaluate projects X and Y

27. What potential biases exist in project selection if Bell Manufacturing did not adjust for the difference in risk between projects X and Y (please select one of the three chooses below)

A - The danger of not accounting for differences in project risk is that potentially unacceptable low-risk projects (with positive NPVs) may be chosen over potentially acceptable high-risk projects (with negative NPVs).

B -The danger of not accounting for differences in project risk is that potentially unacceptable high-risk projects (with negative NPVs) may be chosen over potentially acceptable low-risk projects (with positive NPVs).

C - The danger of not accounting for similarities in project risk minimal. There is no proven correlation between discount rates and NPV value. So using the RADR is merely a theoretical approach that is hardly put intp practice. Real life impact is negligible.