Risk-Adjusted Discount Rate Approach (Answer All Please)

- lower or Higher rate - Graph the points please - 19.52 million, 3.26 million, 19.10 million or - 2.00 million - 3.37 million, 19.52 million, -2.00 million or 19.10 million

Thanks in advance!

5. Risk-adjusted discount rate approach Aaa Aa The risk-adjusted discount rate approach is based on the concept that different projects have different risk profiles. Based on a project's risk profile, the rate of return used to discount the expected cash flows from the project is adjusted to accommodate project risk If you estimate that a project has higher risk than the average risk of other projects in the company, you would use a as the discount rate in the project's net present value evaluation. Consider the case of Keedsler Motor: The company is owned 100% by private shareholders and carries no debt on its books. The company's beta is estimated to be 1.0. The company uses a risk-free rate of 9%, and the market expects a return of 13%. The graph plots the security market line (SML). Based on your understanding of the capital asset pricing model and the risk-adjusted discount rate approach toward project risk, plot the following points on the graph: Use point A (orange square) to show the rate of return the company should require on a project with average risk. Use point B (green triangle) to show the rate of return the company should require on a project with a beta of 0.8. Tool tip: Mouse over the points on the graph to see their coordinates. REQUIRED RATE 0F RETURN (Percent) 20 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 PROJECT BETA Clear All Suppose the company is analyzing a project that requires a net investment of $2.0 million. The project looks very promising and is forecasted to generate annual net cash flows of $6.0 million each year for the next five years If the project is considered to be of average risk, its NPV would be If the project is considered to have a lower risk than the average risk of projects in the company, and it has a beta of 0.8, the project's NPv would be