27 Jun Moses Manufacturing Is Attempting To Select The Best
Moses Manufacturing is attempting to select the best of three mutually exclusive projects, X, Y, and Z. Although all the projects have 5-year lives, they possess differing degrees of risk. Project X is in class V, the highest-risk class; project Y is in class II, the below-average-risk class; and project Z is in class III, the average-risk class. The basic cash flow data for each project and the risk classes and risk-adjusted discount rates (RADRs) used by the firm are shown in the following tables.
a. Find the risk-adjusted NPV for each project.
b. Which project, if any, would you recommend that the firm undertake?
(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)
| Project X | Project Y | Project Z | ||
| Initial investment(CF 0CF0) | $184 comma 000184,000 | $231 comma 000231,000 | $315 comma 000315,000 | |
| Year(tt ) | Cash inflows(CF Subscript tCFt) | |||
| 1 | $85 comma 00085,000 | $59 comma 00059,000 | $87 comma 00087,000 | |
| 2 | 69 comma 00069,000 | 68 comma 00068,000 | 87 comma 00087,000 | |
| 3 | 61 comma 00061,000 | 73 comma 00073,000 | 87 comma 00087,000 | |
| 4 | 62 comma 00062,000 | 87 comma 00087,000 | 87 comma 00087,000 | |
| 5 | 64 comma 00064,000 | 95 comma 00095,000 | 87 comma 00087,000 | |
| Risk Classes and RADRs | ||
| Risk Class | Description | Risk adjusted discount rate (RADR) |
| I | Lowest risk | 10.8 %10.8% |
| II | Below-average risk | 13.613.6 |
| III | Average risk | 15.415.4 |
| IV | Above-average risk | 19.619.6 |
| V | Highest risk | 22.422.4 |
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