P$1210$ Risk$-$adjusted discount rates: Tabular After a careful evaluation of investment alternatives and opportunities, Masters School Supplies has developed a CAPM$-$type relationship linking a risk index to the required return $($RADR$),$ as shown in the following table.

Risk index Required return $($RADR$)$

$0\mathrm{.}07\mathrm{.}0\%($risk$-$free rate, RF$)$

$0\mathrm{.}28\mathrm{.}0$

$0\mathrm{.}49\mathrm{.}0$

$0\mathrm{.}610\mathrm{.}0$

$0\mathrm{.}811\mathrm{.}0$

$1\mathrm{.}012\mathrm{.}0$

$1\mathrm{.}213\mathrm{.}0$

$1\mathrm{.}414\mathrm{.}0$

$1\mathrm{.}615\mathrm{.}0$

$1\mathrm{.}816\mathrm{.}0$

$2\mathrm{.}017\mathrm{.}0$

The firm is considering two mutually exclusive projects, A and B$.$ Following are the data that the firm has been able to gather about the projects.

Project A Project B

Initial investment $($CF$0)$$$20,000$$$30,000$

Project life $5$ years $5$ years

Annual cash inflow $($CF$)$ $$7,000$ $$10,000$

Risk index $0\mathrm{.}21\mathrm{.}4$

All the firm$$s cash inflows have already been adjusted for taxes.

Evaluate the projects using risk$-$adjusted discount rates.

Discuss your findings in part a$,$ and recommend the preferred project.