Henderson Land Ltd n has decided to use the certainty equivalent method in determining whether a new investment should be made. The expected cash flows associated with this investment and the estimated certainty equivalents are as follows:

Year Cash Flows CE coefficients

0 -$90,000 1.00

1 25,000 0.95

2 30,000 0.90

3 30,000 0.83

4 25,000 0.75

5 20,000 0.65

Given that Henderson Land n normal required rate of return is 18% and that the after-tax risk-free rate is 7%, should this project be accepted?

Answer rating: 100% (QA)

Calculation of NPV of the project using certainty equivalent method Year Cash flow CE coeffic... View the full answer