The Bull Company, a manufacturer of lawn mowers, is considering the introduction of a new model. The required initial outlay is $22 million. The net cash flows over the 4-year life cycle and the corresponding certainty equivalents of the new model are as follows:

Year Net Cash Flow Certainty Equivalent Factor
1 $15 million 0.90
2 $13 million 0.75
3 $11 million 0.55
4 $ 9 million 0.30

The company's cost of capital is 14% and the risk-free rate is 6%. Bull uses the equivalent certainty approach to evaluate above-average risk investments like this one. What is the certainty equivalent NPV of the project?

Answer rating: 100% (QA)

To calculate the certainty equivalent NPV of the project we first need to calculate the present valu... View the full answer