Nico Manufacturing is considering investment in one of two mutually exclusive projects X and Y...
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Accounting
Nico Manufacturing is considering investment in one of two mutually exclusive projects X and Y which are described below. Nico Manufacturing's overall cost of capital is 15 percent, the market return is 15 percent and the risk-free rate is 5 percent. Nico estimates that the beta for project X is 1.20 and the beta for project Y is 1.40.
Project X Project Y
Initial Investment $3,500,000 $3,900,000
Year Cash Inflows (CF)
1 $1,500,000 $1,100,000
2 1,500,000 1,600,000
3 1,500,000 1,900,000
4 1,500,000 2,300,000
----Calculate the risk-adjusted discount rates for Project X and Project Y.
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