11-4A. (Certainty equivalents) Neustal, Inc., has decided to use the certainty equivalent method in determining whether or not a new investment should be made. The expected cash flows associated with this investment and the estimated certainty equivalent coefficients are as follows:

Given that Neustal's normal required rate of return is 18 percent and that the after-tax risk-free rate is 7 percent, should this project be accepted?

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YEAR EXPECTED VALUES FOR CASH FLOWS CERTAINTY EQUIVALENT 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