A7. (Finding NPVs with differing project risks) Assume the expected return on the market
portfolio is 15% and the riskless return is 9%. Also assume that all of the projects listed
here are perpetuities with annual cash flows (in $) and betas as indicated. None of the
projects requires or precludes any of the other projects, and each project costs $2,000.
a. What is the NPV of each project?
b. Which projects should the firm undertake?
PROJECT A B C D E F
Annual cash flow 310 500 435 270 385 450
Beta 1.00 2.25 2.22 0.65 1.37 2.36
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