Discount rate used for average-risk project

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Reference no: EM131933527

Fairfax Pizza has a weighted-average cost of capital of 10.77 percent and is evaluating two projects: A and B. Project A has an initial investment of 4,345 dollars today and an expected cash flow of 6,604 dollars in 8 years. Project A is considered more risky than an average-risk project at Fairfax Pizza, such that the appropriate discount rate for it is 1.06 percentage points different than the discount rate used for an average-risk project at Fairfax Pizza. The internal rate of return for project A is 5.372 percent. Project B has an initial investment of 5,594 dollars today and an expected cash flow of 8,894 dollars in 3 years. Project B is considered less risky than an average-risk project at Fairfax Pizza, such that the appropriate discount rate for it is 1.19 percentage points different than the discount rate used for an average-risk project at Fairfax Pizza. The internal rate of return for project B is 16.715 percent. What is The NPV of project A plus the NPV of project B?

Reference no: EM131933527

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