1. The potential projects that Belfry is considering have the following expected cash flows. Each project has its own unique risk and as such, the beta on each project is given. Using the data from #2 for the risk-free rate and market risk premium, what is the required percentage return for each of the projects? Show the required returns to 2 decimals, that is xx.xx%. You will use these rates when analyzing each project in the next part of the assignment, these are the required rates of return for Problems 4-6). (8 pts)

	Project A	Project B	Project C	Project D
Beta	1.2	1.6	1.7	1.5

NOTE: When a firm has projects that differ in risk (beta) than the "average" for the company, then the firm's overall required return (from Problem 2) isn't applicable. Each project needs to provide a return greater than or equal to its unique risk-adjusted required return. THE RATES CALCULATED FOR PROJECTS A D IN #3 ARE THE REQUIRED RETURNS FOR EACH FOR THE FOLLOWING:

Use for Problems 4-7. For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each capital budgeting decision tool, indicate if the project should be accepted or rejected, assuming that each project is independent of the others. Important Note: The venture capital folks have a firm maximum payback period of four years.

Expected cash flows for the four potential projects that Belfry is considering as shown below:

Year	Project A	Project B	Project C	Project D
0	-$9,000,000	-$8,000,000	-$7,500,000	-$6,000,000
1	$2,000,000	$3,000,000	$2,000,000	$1,000,000
2	$2,000,000	$2,000,000	$2,000,000	$2,000,000
3	$2,000,000	$2,000,000	$1,500,000	$1,000,000
4	$2,000,000	$1,200,000	$1,500,000	$1,000,000
5	$2,000,000	$1,200,000	$2,500,000	$1,000,000
6	$2,000,000	$500,000	$2,500,000	$1,000,000
7	$2,000,000	$500,000		$1,000,000
8		$500,000		$1,000,000
9		$250,000		$500,000
10				$500,000

I have provided a suggested template for your final answers. Below the grid is where you should show all your required backup calculations (this means your cash flow register inputs, the interest rate, PI calculation and cumulative cash flows for payback). If you are working this in Excel, feel free to submit your Excel sheet, where the equations in the cells will provide the required backup. Be sure to clearly indicate the required rate of return for each project (you calculated this in Problem 3).

		Year	Project A	Project B	Project C	Project D
Points		Req. Return (use 2 decimals xx.xx%)
8	4a	NPV (to nearest $1)
2	4b	NPV accept/reject
4	5a	IRR (xx.xx%)
2	5b	IRR accept/reject
4	6a	PI (show 2 decimals)
2	6b	PI accept/reject
4	7a	Payback Period (x.x years)
2	7b	Payback accept/reject

Required Rate of Return is 12.20%Hence Expected Return based on assumed economic probabilities is 5.70%