Risk-adjusted rates of return using CAPM Centennial Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a CAPM-type risk-adjusted discount rate (RADR) in its analysis. Centennial's managers believe that the appropriate market rate of return is 11.5%, and they observe that the current risk-free rate of return is 6.9%. Cash flows associated with the two projects are shown in the following table. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) O 0,000 Initial investment (CF) Year (t) Project X Project Y $73,000 $84,000 Cash inflows (CFt) $29,000 $19,000 29,000 30,000 29,000 35,000 29,000 49,000 WN - a. Use a risk-adjusted discount rate approach to calculate the net present value of each project, given that project X has an RADR factor of 1.25 and project Y has an RADR factor of 1.37. The RADR factors are similar to project betas. (Hint: Use the following equation to calculate the required project return for each: r= Rp + bx b. Discuss your findings in part (a), and recommend the preferred project. a. The risk-adjusted discount rate for project X will be %. (Round to two decimal places.) The risk-adjusted discount rate for project will be %. (Round to two decimal places.) The net present value for project X is $ (Round to the nearest cent.) The net present value for project Y is $ . (Round to the nearest cent.) b. Discuss your findings in part (a), and recommend the preferred project. (Select from the drop-down menus.) The RADR approach prefers project (1) - over project (2) - . The RADR approach combines the risk adjustment and the time adjustment in a single value. The RADR approach is most often used in business. (1) OX (2) OY or o x