After a careful evaluation of investment alternatives and? opportunities, Masters School Supplies has developed a? CAPM-type relationship...

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Finance

After a careful evaluation of investment alternatives and?opportunities, Masters School Supplies has developed a? CAPM-typerelationship linking a risk index to the required return? (RADR),as shown in the table
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.
The firm is considering two mutually exclusive? projects, A andB. Following are the data the firm has been able to gather aboutthe projects.
Project A
Project B
Initial investment
?(CF 0CF0?)
$ 22 comma 000$22,000
$ 30 comma 000$30,000
Project life
77 years
77 years
Annualcash inflow
?(CF nbspCF ?)
$ 6 comma 000$6,000
$ 10 comma 900$10,900
Risk index
0.60.6
1.61.6
All the? firm's cash flows for each project have already beenadjusted for taxes.
a. Evaluate the projects using ?risk-adjusted discount
rates.
b. Discuss your findings in part
?(a?),
and recommend the preferred project.
a. The net present value for project A is
?$______
???(Round to the nearest? cent.)
Risk index
Required return? (RADR)
0.0
7.1 %7.1%
?(risk-free rate,
Upper R Subscript Upper FRF?)
0.2
8.0
0.4
8.9
0.6
9.8
0.8
10.7
1.0
11.6
1.2
12.5
1.4
13.4
1.6
14.3
1.8
15.2
2.0
16.1

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XYRiskindexRequired ReturnPercent07102804890698081071116121251413416143181522161Use Regression tool of data analysisClickData Click on Data AnalysisSelect See Answer

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	Project A	Project B
Initial investment ?(CF 0CF0?)	$ 22 comma 000$22,000	$ 30 comma 000$30,000
Project life	77 years	77 years
Annualcash inflow ?(CF nbspCF ?)	$ 6 comma 000$6,000	$ 10 comma 900$10,900
Risk index	0.60.6	1.61.6

Risk index	Required return? (RADR)
0.0	7.1 %7.1% ?(risk-free rate, Upper R Subscript Upper FRF?)
0.2	8.0
0.4	8.9
0.6	9.8
0.8	10.7
1.0	11.6
1.2	12.5
1.4	13.4
1.6	14.3
1.8	15.2
2.0	16.1