Project

E F G

Initial Investment (CF0) $14,700 $11,000 $20,000

Year Cash Flows

1 $5,700 $5,500 $4,100

2 5,700 3,800 5,000

3 5,700 5,000 8,300

4 5,700 2,300 12,500

Risk index (RI) 1.85 0.99 0.64

Risk-adjusted discount ratesBasicCountry Wallpapers is considering investing in one of three mutually exclusiveprojects, E,F, and G. Thefirm's cost ofcapital, r, is 14.6%, and therisk-free rate, RF, is 9.7%. The firm has gathered the following basic cash flow and risk index data for each project LOADING...

.

a. Find the net present value(NPV) of each project using thefirm's cost of capital. Which project is preferred in thissituation?

b. The firm uses the following equation to determine therisk-adjusted discountrate, RADRj, for each project j:

RADRj=RF+RIjrRF

where RF = risk-free rate ofreturn, RIj = risk index for project j, and r = cost of capital.

c. Use the RADR for each project to determine its risk-adjusted NPV. Which project is preferable in thissituation?

d. Compare and discuss your findings in parts (a) and (c).Which project do you recommend that the firmaccept?

a. Find the net present value(NPV) of each project using thefirm's cost of capital.

The net present value for project E is --------

. (Round to the nearestcent.)

The net present value for project F is --------

. (Round to the nearestcent.)

The net present value for project G is ---------

. (Round to the nearestcent.)

Which project is preferred in thissituation?(Select from thedrop-down menu.)

Project

G

E

F

, with the highestNPV, is preferred.

b. The firm uses the following equation to determine therisk-adjusted discountrate, RADRj, for each project j:

RADRj=RF+RIjrRF

where RF = risk-free rate ofreturn, RIj = risk index for project j, and r = cost of capital.

The RADR for project E is -----------

%. (Round to two decimalplaces.)

The RADR for project F is ------------

%. (Round to two decimalplaces.)

The RADR for project G is ----------

%. (Round to two decimalplaces.)

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

The risk-adjusted net present value for project E is --------------

. (Round to the nearestcent.)

The risk-adjusted net present value for project F is -------

. (Round to the nearestcent.)

The risk-adjusted net present value for project G is --------

. (Round to the nearestcent.)

Which project is preferable in thissituation? (Select from thedrop-down menu.)

Project

G

E

F

will be preferable.

d. Compare and discuss your findings in parts (a) and (c).Which project do you recommend that the firmaccept? (Select from thedrop-down menu.)

After adjusting the discountrate, even though all projects are stillacceptable, the ranking changes. Project

F

G

E

has the highest risk-adjusted NPV and should be chosen