Table 12.2 A Firm Is Considering Investment in a Capital Project Which

Multiple Choice

Table 12.2
A firm is considering investment in a capital project which is described below. The firm's cost of capital is 18 percent and the risk-free rate is 6 percent. The project has a risk index of 1.5. The firm uses the following equation to determine the risk adjusted discount rate, RADR, for each project: RADR = Rf + Risk Index (Cost of capital - Rf)
-The discount rate that should be used in the net present value calculation to compensate for risk is ________. (See Table 12.2)

A) 6 percent
B) 15 percent
C) 18 percent
D) 24 percent