Risk Index

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Required return (RADR)

7.2% (risk- free rate, RF)

8.1

9.0

9.9

10.8

11.7

12.6

13.5

14.4

15.3

16.2

CAPM-type relationship linking a risk index to the required return (RADR), as shown in the table above. The firm is considering two mutually exclusive projects, A and B. Following are the data the firm has been able to gather about the projects.

	Project A	Project B
Initial investment (CF0)	$23,000	$31,000
Project life	8 years	8 years
Annual cash inflow (CF )	$6,000	$9,800
Risk index	0.4	1.4

All the firm's cash flows for each project have already been adjusted for taxes.

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

b. Discuss your findings in part (a), and recommend the preferred project.

Round all answers to the nearest cent