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A project has a forecasted cash flow of $130 in year 1 and $141 in year 2. The interest rate is 5%, the estimated risk
A project has a forecasted cash flow of $130 in year 1 and $141 in year 2. The interest rate is 5%, the estimated risk premium on the market is 12.5%, and the project has a beta of 0.70. If you use a constant risk- adjusted discount rate, answer the following: a. What is the PV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value b. What is the certainty-equivalent cash flow in year 1 and year 2? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Certainty- Equivalent Cash Flow Year 1 Year 2 c. What is the ratio of the certainty-equivalent cash flows to the expected cash flows in years 1 and 2? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Ratio Year 1 Year 2
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