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    Evaluate Erica's Farm projects using risk adjusted discount rate

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    Erica's Farm is faced with two mutually exclusive projects. The following is data on the two projects.

    Project C K
    Initial Investment $40,000 $50,000
    Project Life 3 years 3 years
    Annual Cash flow 15,000 25,000
    Risk adjusted discount rate 10% 14%
    Risk free rate of return 6% 6%

    Evaluate the projects using risk-adjusted discount rates. What is the NPV for each project?

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    Solution Summary

    The expert evaluates Erica's farm project using risk adjusted discount rates and the net present value.