KLE Holdings is considering a capital budgeting project with a life of 7 years that requires an initial outlay of
$277,400. The probability distribution for annual incremental cash flows is as follows:
Probability Incremental Free Cash Flow
4% -$15,000
16% 18,000
55% 65,000
25% 99,000
a. The risk-adjusted required rate of return for this project is 12%. Calculate the risk-adjusted net present
value of the project and the project's IRR.
b. Should the project be accepted?
a. Expected annual cash flow
= (.04 × -$15,
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