Question 2. Interviews with senior managers have produced the following adjustments to the expected cash flow in years 1 to 7. For each year the estimated adjustment needed to obtain the certainty equivalent cash flow is shown as a ratio which needs to be applied to the estimated values to yield the certainty equivalent values year 1234567 Expected cash flow (000s) 8775555 Ratio to obtain certainty equivalent 0.9 0.85 0.8 0.75 0.7 0.65 0.60 (i) Explain what it means that all the ratios are less than unity. (ii) If the project has an initial value of 13,000 and the firm's own discount is 20% with the risk free discount being 10%, should be project be accepted if you use the certainty equivalent data?

Interviews with senior managers have produced the following adjustments to the expected cash flow in years 1 to 7 . For each year the estimated adjustment needed to obtain the certainty equivalent cash flow is shown as a ratio which needs to be applied to the estimated values to yield the certainty equivalent values (i) Explain what it means that all the ratios are less than unity. (ii) If the project has an initial value of 13,000 and the firm's own discount is 20% with the risk free discount being 10%, should be project be accepted if you use the certainty equivalent data? Interviews with senior managers have produced the following adjustments to the expected cash flow in years 1 to 7 . For each year the estimated adjustment needed to obtain the certainty equivalent cash flow is shown as a ratio which needs to be applied to the estimated values to yield the certainty equivalent values (i) Explain what it means that all the ratios are less than unity. (ii) If the project has an initial value of 13,000 and the firm's own discount is 20% with the risk free discount being 10%, should be project be accepted if you use the certainty equivalent data