Seved Help Save & Exit s Check my wc Sheila Goodman recently received her MBA from the Harvard Business School. She has joined the family business, Goodman Software Products Inc., as Vice-President of Finance. She believes in adjusting projects for risk. Her father is somewhat skeptical but agrees to go along with her. Her approach is somewhat different than the risk-adjusted discount rate approach, but achieves the same objective She suggests that the inflows for each year of a project be adjusted downward for lack of certainty and then be discounted back at a risk-free rate. The theory is that the adjustment penalty makes the inflows the equivalent of riskless inflows, and therefore a risk-free rate is justified A table showing the possible coefficient of variation for an inflow and the associated adjustment factor is shown next: Coefficient of Variation 0 - 0.25 0.26 - 0.50 0.51 -0.75 0.76 - 1.00 1.01 - 1.25 Adjustment Factor 8.90 0.80 0.70 0.60 0.50 Assume a $185,000 project provides the following inflows with the associated coefficients of variation for each year. Coefficient on variation 0.16 62,200 & Poor 9 of 10 til Next > Seved Help Save & Exit s Check my wc Sheila Goodman recently received her MBA from the Harvard Business School. She has joined the family business, Goodman Software Products Inc., as Vice-President of Finance. She believes in adjusting projects for risk. Her father is somewhat skeptical but agrees to go along with her. Her approach is somewhat different than the risk-adjusted discount rate approach, but achieves the same objective She suggests that the inflows for each year of a project be adjusted downward for lack of certainty and then be discounted back at a risk-free rate. The theory is that the adjustment penalty makes the inflows the equivalent of riskless inflows, and therefore a risk-free rate is justified A table showing the possible coefficient of variation for an inflow and the associated adjustment factor is shown next: Coefficient of Variation 0 - 0.25 0.26 - 0.50 0.51 -0.75 0.76 - 1.00 1.01 - 1.25 Adjustment Factor 8.90 0.80 0.70 0.60 0.50 Assume a $185,000 project provides the following inflows with the associated coefficients of variation for each year. Coefficient on variation 0.16 62,200 & Poor 9 of 10 til Next >