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P12-20 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
P12-20 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 riskfree rate, Rr, is 2%. The firm has estimated each project's cash flow and each project's beta, as shown in the following table. Excel 1. Find the NPV of each project, wing the firn s east of capizal. Which propect is preferred in this situation? b. The firm uses the followng equatian to determine the risk-adjusted discount rate, RADR, for each project i: RRi=Ri+R1(rinRi) Where ra=expectedrectureoninathetportlolio=10F Substiture each project's beta in to this equation to determine its RADR. c. UEe the RADR for each project to determine its risk-adjusted NPV, Which project is preferable in this siturtion? d. Compare and difacuse your findings in parts a and c. Which project do you secomenend that the firan accept
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