Determining the expected cash flows

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1. The G. Wolfe Corporation is examining two capital budgeting projects with five-year lives. The first, Project A, is a replacement project; the second, Project B, is unrelated to current operations. The G. Wolfe Corporation uses the risk-adjusted discount rate method and groups projects according to purpose and then 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 below:

Year Project A Project B

0 -$250,000 -$400,000

1 30,000 135,000

2 40,000 135,000

3 50,000 135,000

4 90,000 135,000

5 130,000 135,000

The purpose/risk classes and preassigned required rates of return are as follows:

Purpose Required Return

Replacement decision 12%

Modification or expansion of existing product line 15%

Project unrelated to current operations 18%

Research and development operations 20%

Determine the projects' risk-adjusted net present values.

Reference no: EM131092211

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