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Business, 23.03.2020 21:34 mayahgrimes

Nico Manufacturing is considering investment in one of two mutually exclusive projects X and Y which are described below. Nico Manufacturing's overall cost of capital is 15 percent, the market return is 15 percent and the risk-free rate is 5 percent. Nico estimates that the beta for project X is 1.20 and the beta for project Y is 1.40Project XInitial Investment = $3,500,000Cash Inflowsyear 1 $1,500,000year 2 $1,500,000year 3 $1,500,000year 4 $1,500,000Project YInitial Investment = $3,900,000Cash Inflowsyear 1 $1,100,000year 2 $1,600,000year 3 $1,900,000year 4 $2,300,0001) Calculate the risk-adjusted discount rates for project X and project Y2) Using the risk-adjusted discount rate method of project evaluation, find the NPV for projects X and Y. Which project should Nico select using this method?3) Calculate the NPV of Projects X and Y assuming that the firm did not employ the RADR method and instead used the firm's overall cost of capital to evaluate projects X and Y

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