Capital Budgeting Decisions A college intem working at Anderson Paints evaluated potential investments using the firm's average required rate of return (n) as the discount role in the evaluation process and he produced the following report for you as the capital budgeting manager at Anderson Paints Project NPV IRR Risk LOM $1.500 12.5% High 11.0 Low (800) 10.0 Average DOG (150) 9.5 Low QUE YUP As the capital investment manager you must account for the risks associated with capital budgeting projects before making final recommendations and decisions. The company's capital investment risk management policy calls for an adjustment of the firm's average required rate of return by plus/minus 2% if a project's risk deviates from the firm's average risk elassification. The table above shows the estimated profitability of each project using the average required rate of return of the company and disregarding any deviation of each project's risk from the firm's average, Your job as the capital investment manager is to account for differences in risk in each project according to company's policy and to make recommendations regarding the acceptability or non-acceptability of each potential investment as part of the upcoming proposed firm's capital budget. First, explain how you would adjust cach project's required rate of return for risk using the risk management policy of the company and discuss the appropriateness of the firm's risk management policy. Second, insert a column in the table above showing the appropriate risk-adjusted required rate of retum or discount rate for each project. Third, explain which of the projects listed above you would recommend and why for the upcoming firm's capital investment budget. ter spot An intro to Capita l Chapter 9 Capitalopte 55683 TON 100g 0,1 g