Table 12.2

A firm is considering investment in a capital project which is described below. The firm's cost of capital is 18 percent and the

riskfree

rate is 6 percent. The project has a risk index of 1.5. The firm uses the following equation to determine the risk adjusted discount rate, RADR, for each project: RADR = Rf + Risk Index (Cost of capital

Rf)

InitialInvestment$1,000,000

YearCashInflow

1$500,000

2500,000

3500,000

The net present value of the project when adjusting for risk is ________. (See Table 12.2)

Question content area bottom

Part 1

A.

$105,000

B.

$87,000

C.

$0

D.

$9,300