(Risk-adjusted discount rates and riskclasses) The G.Wolfe C
(Risk-adjusted discount rates and riskclasses) The G.Wolfe Corporation is examining two capital-budgeting projects with 5-yearlives. The first, project A, is a replacement project; the second, project B,is a project unrelated to current operations. The G. Wolfe Corporation uses therisk-adjusteddiscount rate method and groups projects according topurpose, and then it uses a required rate of returnor discount rate that has been preassigned to that purpose orrisk class. The expected cash flows for these projects are given here:PROJECTAPROJECTBInitialinvestment-$250,000-$400,000Cashinflows:Year1$130,000$135,000Year2$40,000$135,000Year3$50,000$135,000Year4$90,000$135,000Year5$130,000$135,000Thepurpose/risk classes and preassigned required rates of return are as follows:PURPOSEREQUIRED RATE OFRETURNReplacementdecision12%Modification orexpansion of existing product line15%Projectunrelated to current operations15%Research anddevelopment operations20%