Shella 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 risk-free rate. The theory is that the adjustment penalty makes the inflows the equivalent of riskless Inflows and therefore amki 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 Adjustment Variation Factor - 0.25 0.26 - 0.50 0.51 -0.75 0.76 - 1.ee 101 - 1.25 0.9 3.BO 0.70 0.60 8.50 A sume a $200,000 project provides the following inflows with the associated coefficients of variation for each year, Year 1 2 3 4 5 Inflow $39,800 57,300 74,500 61,400 64,780 Coefficient of Variation 0.16 0.24 0.53 0.82 1.12 Shella 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 risk-free rate. The theory is that the adjustment penalty makes the inflows the equivalent of riskless Inflows and therefore amki 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 Adjustment Variation Factor - 0.25 0.26 - 0.50 0.51 -0.75 0.76 - 1.ee 101 - 1.25 0.9 3.BO 0.70 0.60 8.50 A sume a $200,000 project provides the following inflows with the associated coefficients of variation for each year, Year 1 2 3 4 5 Inflow $39,800 57,300 74,500 61,400 64,780 Coefficient of Variation 0.16 0.24 0.53 0.82 1.12