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Risk-adjusted discount rates-Basic Country Wallpapers is considering investing in one of three mu...

Risk-adjusted discount rates-Basic Country Wallpapers is considering investing in one of three mutually exclusive projects E,

Risk-adjusted discount rates-Basic Country Wallpapers is considering investing in one of three mutually exclusive projects E, F, and G. The firm's cost of capital, r, is 15.4%, and the risk-free rate, RF, is 9.8%. The firm has gathered the following basic cash flow and risk index data for each project EEB a. Find the net present value (NPV) of each project using the firm's cost of capital. Which project is preferred in this situation? b. The firm uses the following equation to determine the risk-adjusted discount rate, RADR, for each project j where RF-risk-free rate of return, R, = risk index for project j , and r = cost of capital Substitute each project's risk index into this equation to determine its RADR. c. Use the RADR for each project to determine its risk-adjusted NPV. Which project is preferable in this situation? d. Compare and discuss your findings in parts (a) and (c). Which project do you recommend that the firm accept? Project (j) Initial investment (CFo) $15,700 $11,000 $18,400 Year (t) Cash inflows (CFt) $6,000 6,000 6,000 6,000 1.85 $5,700 3,900 5,300 2,400 1.04 $3,500 6,300 9,000 11,900 0.63 4 Risk index (RI) a. Which project is preferred in this situation? (Select from the drop-down menu.) ProjectV, with the highest NPV, is preferred c. Which project is preferable in this situation? (Select from the drop-down menu.) Projectwill be preferable d. After adjusting the discount rate, even though all projects are still acceptable, the ranking changes. Project | ▼| has the highest risk-adjusted NPV and should be chosen
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