Table 12.2a Norwood Construction Company is considering investment in a capital project which is described below . The firm's cost of capital is 18 percent and the risk - free 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 ) Initial Investment $ 1,000,000 Cash Inflow Year 1 $ 500,000 2 500,000 3 500,000 ( See Table 12.2a ) The discount rate that should be used in the net present value calculation to compensate for risk is