6 - for these projects are given here PROJECT A PROJECT B...

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6-1. ( Expected rate of return and risk ) Carter Inc. is evaluating a security. One-year Treasury bills are currently paying 9.1 percent. Calculate the investment’s expected return and its standard deviation. Should Carter invest in this security? PROBABILITY RETURN .15 6% .30 9% .40 10% .15 15% ER = 9.85 SD 2.54 10-15. ( Risk-adjusted discount rates and risk classes ) The G. Wolfe Corporation is examining two capital- budgeting projects with 5-year lives. The first, project A, is a replacement project; the second, project B, is a project unrelated to current operations. The G. Wolfe Corporation uses the risk-adjusted discount rate method and groups projects according to purpose, and then it uses a required rate of return or discount rate that has been preassigned to that purpose or risk class. The expected cash flows
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Unformatted text preview: for these projects are given here: PROJECT A PROJECT B Initial investment _ $250,000 _ $400,000 Cash inflows: Year 1 $130,000 $135,000 Year 2 40,000 135,000 Year 3 50,000 135,000 Year 4 90,000 135,000 Year 5 130,000 135,000 The purpose/risk classes and preassigned required rates of return are as follows: PURPOSE REQUIRED RATE OF RETURN Replacement decision 12% Modification or expansion of existing product line 15 Project unrelated to current operations 18 Research and development operations 20 Determine each project’s risk-adjusted net present value. Project A: $57,598.4 9 Project B: $18,786.5 2...
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