The capital budgeting manager of Conscientious Construction Company (CCC) submit

Question

The capital budgeting manager of Conscientious Construction Company (CCC) submitted the following report to the CFO:

CCC generally takes risk into consideration by adjusting its average required rate of return (r), which equals 8 percent, when evaluating projects with risks that are either substantially lower or substantially higher than average. A 5 percent adjustment is made for high-risk projects, and a 2 percent adjustment is made for low-risk projects. If the above projects are independent, which project(s) should CCC purchase?

Explanation / Answer

Risk adjustment for projects: High = 12%-5% =7% ,low - 9-2 =7%, average=8%. so projecy average risk project should be undertakem as it is guaranteeing more return

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