Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $138,600. Project 2 requires an initial investment of $107,100. Assume the company requires a 10% rate of return on its investments. (PV of $1. FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Project 1 Years 1-7 Net present value Net present value Years 1-5 Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net present values should be indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest whole dollar.) Project 2 Net present value Net Cash Flows x Net Cash Flows X Present Value of Annuity at 10% Present Value of Annuity at 10% < Prex = = Project 1 $ 115,200 12 of 16 77,350 19,800 9,520 $ 8,530 Present Value of Net Cash Flows $ 0 Present Value of Net Cash Flows $ 88.8 Project 2 $ 91,400 0 38,080 21,420 23,800 $ 8,100 Next >

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Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

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Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.