Question: Question no 12: A Company is examining 2 mutually exclusive investment proposals. The management of the company uses certainty equivalence to evaluate new investment proposals.

Question no 12: A Company is examining 2 mutually exclusive investment

Question no 12: A Company is examining 2 mutually exclusive investment proposals. The management of the company uses certainty equivalence to evaluate new investment proposals. From the following information pertaining to these projects, advice the company as to which project should be taken up. Year Proposal Investment A Cash Flow CE Investment B Cash Flow CE 0 (25000) 1 (25000) 1 1 15000 0.8 9000 0.9 2 15000 0.7 18000 0.8 3 15000 0.6 12000 0.7 0.5 16000 0.4 4 15000 The firm's cost of capital is 12% and risk free borrowing rate is 6%

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