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, is 151% and the risk free rate, Reis 10.1%. The firm has gathered the following basic cash flow and risk index data for each project a. Find the net present value (NPV) of each project using the firm's cost of capital. Which project is preferred in this situation? b. The firm uses the following equation to determine the risk adjusted discount rate, RADR, for each project RADR, =RE+ RI* (r-R) where Re-risk-free rate of return, Rly risk index for project and cost of capital Substitute each project's risk index into this equation to determine its RADR c. Use the RADR for each project to determine its risk-adjusted NPV. Which project is preferable in this situation? d. Compare and discuss your findings in parts (a) and (c). Which project do you recommend that the firm accept? a. Find the not present vwU (NPV) of each project using the firm's cost of capital The net present value for project is $. (Round to the nearest cent.) The net present value for project Fis$]). (Round to the nearest cent) The net present value for project is $(Round to the nearest cent.) Which project is preferred in this situation? (Select from the drop-down menu.) Project with the highest NPV, is preferred b. The firm uses the following equation to determine the risk-adjusted discount rato. RADR, for each project) RADR = RE*R*(-R) where Rx - elektroe rate of retum, Roj risk index for project and r cost of capital The RADR for project is % (Round to two decimal places) The RADR for project Fis (Round to two decimal places) The RADR for project G % (Round to two decimal places) c. Use the RADR for each project to determine isikud NPV Initial investment (CF) Year (t) E $14,100 1 2 3 4 Project () F G $11,000 $19,400 Cash inflows (CF) $6,100 $3,500 3,900 6,400 4,600 8,000 1,900 11,900 1.02 0.56 $6,100 6,100 6,100 6,100 1.83 Risk index (RI) c. Use the RADR for each project to determine its risk-adjusted NPV. The risk-adjusted not present value for project is $. (Round to the nearest cent) The risk-adjusted not present value for project F is $(Round to the nearest cent.) The risk-adjusted not present value for project G i $(Round to the nearest cont) Which project is preferable in this situation? (Select from the drop-down menu.) Project will be preferable d. Compare and discuss your findings in parts (a) and (c) Which project do you recommend that the firm accept? (Select from the drop down menu. After adjusting the discount rate, even though all projects are still acceptable, the ranking changes. Project has the highest risk adjusted NPV and should be chosen
