LG $2$ P$12-20$ RISK$-$ADJUSTED DISCOUNT RATES: BASIC Country Wallpapers is considering investing in one of three mutually exclusive projects, E$,$ F$,$ and G$.$ The firm's cost of capital, r$,$ is $10\%,$ and the risk$-$free rate, R$\_$F$,$ is $2\%.$ The firm has estimated each project's cash flow and each project's beta, as shown in the following table.a$.$ Find the NPV of each project, using the firm's cost of capital. Which project is preferred in this situation? b$.$ The firm uses the following equation to determine the riskadjusted discount rate, RADR$\_$j$,$ for each project j :

R A D R$\_$j$=$R$\_$F$+\backslash$beta $\_$j$\backslash$times $($r$\_$m$-$R$\_$F$)$

Where

$[$ R$\_$F $=$ risk$-$free rate $=2\%$; B$\_$j $=$ beta of project $\_$j; R A D R$\_$j $=$ risk$-$adjusted discount rate for project $\_$j ; r$\_$m $=$ expected return on market portfolio $=10\%]$

Substitute each project's beta into this equation to determine its RADR. c$.$ Use the RADR for each project to determine its risk$-$adjusted NPV$.$ Which project is preferable in this situation? d$.$ Compare and discuss your findings in parts a and c$.$ Which project do you recommend that the firm accept?$10\%,$ and the risk$-$free rate, $R_F,$ is $2\%.$ The firm has estimated each project's cash

flow and each project's beta, as shown in the following table.

a$.$ Find the NPV of each project, using the firm's cost of capital. Which project is

preferred in this situation?

b$.$ The firm uses the following equation to determine the risk$-$adjusted discount

rate, $RAD{R}_j,$ for each project $j$ :

$RAD{R}_j=R_F+{}_j(r_m-R_F)$

Where

$R_F=$ risk$-$free rate $=2\%$

$B_j=$ beta $of$ project $j$

$RAD{R}_j=$ risk$-$adjusted discount rate for project $j$

$r_m=$ expected return $on$ market portfolio $=10\%$

Substitute each project's beta into this equation to determine its RADR.

c$.$ Use the RADR for each project to determine its risk$-$adjusted NPV$.$ Which proj$-$

ect is preferable in this situation?

d$.$ Compare and discuss your findings in parts a and $c.$ Which project do you rec$-$

ommend that the firm accept?