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Meds R Us has just finished evaluating several projects. Their cost of capital is 10%. NPV’s are calculated by the firm’s current cost of capital.

Project Cost NPV IRR

A $12,000 $ -3,000 9%

B $42,000 $12,000 17%

C $45,000 $ 6,000 12%

D $51,000 $12,000 16%

E $63,000 $15,000 11%

C. Meds R Us now performs a risk assessment of the projects. They adjust for project risk by raising the calculated IRR by 2% for low risk projects, leaving the IRR the same for moderate risk projects, and lowering the calculated IRR by 3% for high risk projects. Without capital rationing, and given their cost of capital of 10%, which projects should Meds R Us accept? Why?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92167225

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