Posted: August 23rd, 2016
The initial investment in the project is $45,000. The firm’s cost of capital is 12%, however projects in this risk class have a 14% required rate of return. The risk-free rate is 8%.
Year Cash Inflow
1 $23,000
2 19,000
3 15,000
4 13,000
5 $10,000
1. Use CAPM to calculate the Risk Adjusted Discount Rate to use to evaluate this proposed project.
2. Calculate the Net Present Value of this project using the RADR calculated in Part 1.
Can someone show me how to do this?
The initial investment in the project is $45,000. The firm’s cost of capital is 12%, however projects in this risk class have a 14% required rate of return. The risk-free rate is 8%.
Year Cash Inflow
1 $23,000
2 19,000
3 15,000
4 13,000
5 $10,000
1. Use CAPM to calculate the Risk Adjusted Discount Rate to use to evaluate this proposed project.
2. Calculate the Net Present Value of this project using the RADR calculated in Part 1.
Can someone show me how to do this?
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