Tutorial Chapter 2 Risk and Refinements in Capital Budgeting P12-9 Risk-adjusted discount rates: Basic Mayflower Interiors is considering investing in one of three mutually exclusive projects, X, Y, and Z. The firm's cost of capital, r, is 13.5% and the risk-free rate, R, is 10%. The firm has gathered the basic cash flow and risk index data for each project as shown in the following table. Project (j) Y X Z -$21,000 Initial investment (CF) - $16,500 -$13,000 Year (1) Cash inflows (CF) 1 $5,500 $6.500 $5,000 2 5,500 4,500 6,500 3 5,500 5,200 7,500 4 5,500 2,200 11,500 Risk index (RI;) 1.70 1.00 0.40