Projected to generate cash inflows

Reference no: EM13952941

Like most firms in its industry, Yeastime Bakeries uses a subjective risk assessment tool of its own design. The tool is a simple index by which projects are ranked by level of perceived risk on a scale of 0-10. The scale is recreated in the following table.

Risk index	Required return
0	4.0% (current risk-free rate)
1	4.5
2	5.0
3	5.5
4	6.0
5	6.5 (current IRR)
6	7.0
7	7.5
8	8.0
9	8.5
10	9.0

The firm is analyzing two projects based on their RADRs. Project Sourdough requires an initial investment of $12,500 and is assigned a risk index of 6. Project Greek Salad requires an initial investment of $7,500 and is assigned a risk index of 8. The two projects have 7-year lives. Sourdough is projected to generate cash inflows of $5,500 per year. Greek Salad is projected to generate cash inflows of $4,000 per year. Use each project's RADR to select the better project.

Reference no: EM13952941

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Projected to generate cash inflows : The firm is analyzing two projects based on their RADRs. Project Sourdough requires an initial investment of $12,500 and is assigned a risk index of 6. Project Greek Salad requires an initial investment of $7,500 and is assigned a risk index of 8...

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