1. The G. Wolfe Corporation is examining two capital budgeting projects with five-year lives. The first, Project A, is a replacement project; the second, Project B, is unrelated to current operations. The G. Wolfe Corporation uses the risk-adjusted discount rate method and groups projects according to purpose and then uses a required rate of return or discount rate that has been preassigned to that purpose or risk class. The expected cash flows for these projects are given below:
Year Project A Project B
0 -$250,000 -$400,000
1 30,000 135,000
2 40,000 135,000
3 50,000 135,000
4 90,000 135,000
5 130,000 135,000
The purpose/risk classes and preassigned required rates of return are as follows:
Purpose Required Return
Replacement decision 12%
Modification or expansion of existing product line 15%
Project unrelated to current operations 18%
Research and development operations 20%
Determine the projects' risk-adjusted net present values.