• Payback Period
• Discounted Payback
• Net Present Value
• Profitability Index (Benefit-Cost Ratio)
• Internal Rate of Return
• Modified Internal Rate of Return

• Note that Project A is a Below Average risk project while Project B is of Above Average risk.
• Assume your firm is in the 40% tax bracket, and that your cost of capital is 9%.
• The firm adjusts its projects with risk adjusted discount rates to account for project risks.
• The risk schedule applied is as follows

Project A Project B Year Net Income Cash Flow Net Income Cash Flow 0 (10,000) (10,000) 1 7,000 9,000 1,000 2,000 2 1,000 2,000 9,000 10,000 Risk Class Description RADR Below Average Less than Firm Average Risk 8% 8 Average Risk equal to Firm Average Risk 9% Above Average Higher than Normal but Not Excessive Risk 10% Highest Risk Extremely High Risk 15%