Same Birthday Love Match

A company has two projects: A and B. It ecime that Project B can be riskier than Project A. Cash flows from both projects are:

Year Project A Project B
0 to 100 -200
January 1980 10 2100 50

3110100 4150150


5150200 6150300
7 --- 500

The risk-free discount rate is 12%, but for the project to a risk of 2% or 12% + 2% = 14%
For Project B is greater risk estimated at 8%, or 12% + 8% = 20%.

A project NPV discounted at 14% rate is equal to:
- 100 + 70.17 + 76.94 + 74.25 + 88.81 + 76.79 + 68.33 = - 100 + 425 , 29 = + 355.3

Project B NPV discounted at the rate of 20% is equal to:
- 200 + 8.33 + 34.72 + 57.87 + 72.33 + 80.37 + 100 46 + 139.54 = - 200 + 493.62 = +293,62

is preferred investment in the project A, it has a higher risk-adjusted NPV.