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Building on this, the firm's cost of capital is 18 percent and the risk-free rate is 6 percent. The project has a risk index of 1.5. The firm uses the following equation to determine the risk-adjusted discount rate, RADR, for each project: RADR = RF + Risk Index * (Cost of capital - RF). VIDEO ANSWER: A 50 million equipment investment in a project that would be depreciated straight line to zero over the project's five-year life is being considered by the company.
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