Question
1. Zeta Inc.s cost of capital is 12% and the risk-free rate is 5%. It plans to invest in a new project. The cash flow
1. Zeta Inc.s cost of capital is 12% and the risk-free rate is 5%. It plans to invest in a new project. The cash flow projections ($000) for the project are given below. Calculate the difference in the traditional NPV and the certainty equivalent NPV.
| Year | 0 | 1 | 2 | 3 | 4 |
| Cash Flow | -240 | 75 | 75 | 75 | 75 |
| CE factor | 1 | 0.9 | 0.85 | 0.8 | 0.75 |
| a. | $9.43 | |
| b. | $30.35 | |
| c. | $20.92 | |
| d. | $7.59 |
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Principles Of Finance
Authors: Scott Besley, Eugene F. Brigham
3rd Edition
0324232624, 9780324232622
