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Find the required rates of return for the three projects

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The Spinning Politician Company is considering three mutually exclusive projects: Adscams, Boondoggles, and Closures. Project Adscams requires an initial investment of $12,000 and is expected to generate after-tax cash flows of $6,000 per year for five years. Project Boondoggles requires an initial investment of $18,000 and is expected to generate after-tax cash flows of $10,000 per years for three years. Project Closures requires an initial investment of $25,000 and is expected to generate $11,000 per year for four years. All projects can be replicated. The project betas for Adscams, Boondoggles, and Closures are 1.2, 0.9, and 1.5, respectively. The risk-free rate is 4.25 percent and the expected return on the market (ERm not MRP) is 10.5 percent.

a) Find the required rates of return for the three projects.

b) Find the NPVs of the three projects.

c) Which project should the company undertake? Why?

Reference no: EM132499046

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