Sheila Goodman recently received her MBA from the Harvard Business School. She has joined the family business, Goodman Software Products Incorporated, 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 risk-less 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	Adjustment Factor
0 0.25	0.90
0.26 0.50	0.80
0.51 0.75	0.70
0.76 1.00	0.60
1.01 1.25	0.50

Assume a $125,000 project provides the following inflows with the associated coefficients of variation for each year.

Year	Inflow	Coefficient of Variation
1	$ 38,700	0.15
2	51,200	0.23
3	78,200	0.48
4	58,900	0.75
5	66,500	1.05

Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Fill in the table below:

Note: Do not round intermediate calculations. Round "Adjustment Factor" answers to 2 decimal places and other answers to the nearest whole dollar.

b. If the risk-free rate is 6 percent, compute the net present value of the adjusted inflows.

Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.