Thrheel Forwarding, Inc. is a family operation owned by the three Jenkins brothers. Adrian Brooks, son-in-law of the oldest Jenkins brother, recently assumed the position of assistant to the financial vice-president. Although Brooks's primary responsibility is to evaluate capital investment projects, he was also asked to review the firm's capital structure and the effect of that capital structure on the cost-of-capital.
Brooks is presently undertaking a detailed analysis of the four major capital investment proposals available to Tarheel for the coming year. A description of each project, together with its cost and expected cash flow data (after-tax profit plus depreciation), is presented in Table 1. The four projects are all equally risky, and their risk is about the same as that of the firm's other assets.