Question: Rihanna Corporation is considering two mutually exclusive projects. The expected values for each project's cash flows are as follows: Year Project A (USD) Project
Rihanna Corporation is considering two mutually exclusive projects. The expected values for each project's cash flows are as follows: Year Project A (USD) Project B (USD) 0 -300,000 -300,000 1 100,000 200,000 2 200,000 200,000 3 200,000 200,000 4 300,000 300,000 5 300,000 400,000 The company has decided to evaluate these projects using the certainty equivalent method. The certainty equivalent coefficients for each project's cash flows are as follows: Year Project A Project B 0 1.00 1.00 1 0.95 0.90 2 0.90 0.80 3 0.85 0.70 4 0.80 0.60 5 0.75 0.50 Given that this company's normal required rate of return is 15 percent and the after-tax risk free rate is 8%, which project should be selected?
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