Corporation is examining two capital-budgeting projects

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Reference no: EM132037090

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 for these projects are given .The purpose/risk classes and preassigned required rates of return are shown in the Determine each project's risk-adjusted net present value.

PROJECT A PROJECT B

Initial investment -220,000 -320,000

Cash inflows:

A B

Year 1 150,000 100,000

Year 2 20,000 100,000

Year 3 50,000 100,000

Year 4 80,000 100,000

Year 5 120,000 100,000

PURPOSE REQUIRED RATE OF RETURN

Replacement decision 11%

Modification or expansion of existing product line 15%

Project unrelated to current operations 17%

Research and development operations 20%

Reference no: EM132037090

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