VII RADR A firm is considering investment in a capital project that is described below. The firm's cost of capital is 18% and the risk-free rate is 6%. The project below has a Risk Index of 1.4.

The firm uses the following equation to determine the risk adjusted discount rate, RADR, for each project:

EQUATION USED: RADR = Rf + ( Risk Index * (Firms Cost of capital - Rf)).

YEAR CASH FLOW

0 (1,000,000)

1 500,000

2 500,000

3 500,000

19. The RADR is a. 34.2% b. 22.8% c. 18.14% d. None

20. The risk adjusted NPV is a. $-9,348 b. $-24,982 c. $8,742 d. None