Real Time Systems Inc. is considering the development of one of two mutually exclusive new computer models. Each will require a net investment of $5000. the cash flow figures for each project are shown below:
Model B, which will use a new type of laser disk drive, is considered a high-risk project, which Model A is of average risk. Real Time adds 2 percentage points to arrive at a risk-adjusted cost of capital when evaluating a high-risk project. The cost of capital used for average-risk projects is 10%. What is the NPVs for Model A and B?
The solution explains how to calculathe the risk-adjusted NPV