11-6A. (Certainty equivalents) Nacho Nachtmann Company uses the certainty equivalent approach when it evaluates risky investments. The company presently has two mutually exclusive investment proposals with an expected life of four years each to choose from with money it received from the sale of part of its toy division to another company. The expected net cash flows are as follows:

The certainty equivalent coefficients for the net cash flows are as follows:

Which of the two investment proposals should be chosen, given that the after-tax risk-free rate of return is 6 percent?

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YEAR 0 1 2 PROJECT A -$50,000 15,000 PROJECT B -$50,000 20,000 15,000 25,000 34 15,000 25,000 4 45,000 30,000