As a financial officer, you must determine which project your company should accept. The projects are mutually exclusive and the net present value (NPV) calculations for each take into account the project’s risk. Indicate which project (A or B) you would recommend and explain your reasons for this recommendation.


Project A Project B
NPV $3 million $2.5 million
Risk level very risky very safe

Project B.

Yes, Project B is valued at $500,000 LESS than Project A….

However, Project B is a VERY SAFE bet vs. Project A that is VERY RISKY.

Go with a guaranteed 2.5 million or risk it all for only an extra 500,000?

An investment is purchased for $40 at the beginning of the year. Tansaction costs and taxes added another 10% to the purchase price. The owner pays an extra $6 in management fees. Cash flows came in during th year in the form of dividends $8 and selling price of $55 accompanyied by $3 selling fee. Suppose that this investor is in a 20% tax bracket. Calcualate the Net after-tax rate of return. (express in 2 decimal place