Assume that you are considering several 5-year projects that have varying risk levels. You normally adjust your required return upward by 2% for higher-than-average risk projects and down by 2% for lower-than-average risk projects. The required return for average risk projects is 12%. After evaluating the risk of the projects under consideration, you have the following information: Project A B C Initial Investment ($50,000) ($50,000) ($50,000) Cash flows for years 1–5 14,000 14,750 13,500 Risk Level Average Above Average Below Average Calculate the payback period, IRR, NPV, MIRR and PI for each project using risk-adjusted discount rates. If the projects are independent, which would you accept? If they are mutually exclusive, which would you accept? Draw NPV profile for Project A & B, how might a change in the cost of capital produce a conflict between the NPV and IRR rankings of these two projects? What is the cross rate for both projects?
Assume that you are considering several 5-year projects that have varying risk levels. You normally adjust your required return upward by 2% for higher-than-average risk projects and down by 2% for lower-than-average risk projects. The required return for average risk projects is 12%. After evaluating the risk of the projects under consideration, you have the following information:
Project A B C
Initial Investment ($50,000) ($50,000) ($50,000)
Cash flows for years 1–5 14,000 14,750 13,500
Risk Level Average Above Average Below Average
Calculate the payback period,
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