evaluating these three projects which project should management prefer 621376

The market value of Courant Rox Corporation is $20 million. There are three mutually exclusive potential projects—A, B, and C—being considered by management. Only one of the projects can be selected. All three projects require the same initial cash investment of $7 million. All three projects have only one cash flow after the project is completed one year from now. The management of Courant Rox Corporation has the following information about these three projects:

• Project A: A known single cash flow (i.e., a deterministic cash flow) of $10.5 million immediately after the completion of the project.
• Project B: A risky cash flow (i.e., a stochastic cash flow) of $11 million and the estimated beta for this project is 0.6.
• Project C: A risky cash flow (i.e., a stochastic cash flow) of $12 million and the estimated beta for this project is 2.1.

The one-year risk-free interest rate (i.e., the relevant interest rate over the life of the three projects) is 5%. Based on the projections of Wall Street analysts, the expected return on the stock market over the next year is 12%. Given this information and assuming that the Capital Asset Pricing Model is appropriate for evaluating these three projects, which project should management prefer?