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??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?)

$ 23 comma 000$23,000

$ 28 comma 000$28,000

Project life

77 years

77 years

Annualcash inflow

?(CF nbspCF ?)

$ 7 comma 200$7,200

$ 10 comma 300$10,300

Risk index

0.20.2

1.41.4

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

?$nothing .

???(Round to the nearest? cent.)

Risk index

Required return? (RADR)

0.0

7.5 %7.5%

?(risk-free rate,

Upper R Subscript Upper FRF?)

0.2

8.68.6

0.4

9.79.7

0.6

10.810.8

0.8

11.911.9

1.0

13.013.0

1.2

14.114.1

1.4

15.215.2

1.6

16.316.3

1.8

17.417.4

2.0

18.518.5

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