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what is the risk-adjusted NPV of project A? what is the risk-adjusted NPV of project B? (Risk-adjusted discount rates and risk classes) The G. Wolfe
what is the risk-adjusted NPV of project A?
what is the risk-adjusted NPV of project B?
(Risk-adjusted discount rates and risk classes) The G. Wolfe Corporation is examining two capital-budgeting projects with 5-year lives. The first, project A, is a replacement project; the second, project B, is a project unrelated to current operations. The G. Wolfe Corporation uses the risk-adjusted discount rate method and groups projects according to purpose, and then it uses a required rate of return or discount rate that has been preassigned to that purpose or risk class. The expected cash flows for these projects are given in the popup window, The Determine each project's risk-adjusted purpose/risk classes and preassigned required rates of return are shown in the popup window, net present value. PROJECT A PROJECT B $240,000 - $400,000 Initial investment Cash inflows: $120,000 $130,000 Year 1 Year 2 130,000 30,000 Year 3 40,000 130,000 Year 4 70,000 130,000 Year 5 100,000 130,000 PURPOSE REQUIRED RATE OF RETURN Replacement decision Modification or expansion of existing product line Project unrelated to current operations Research and development operations 11% 15% 19% 20%Step by Step Solution
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