Question
A project has the following forecasted cash flows: Cash Flows ($ thousands) C 0 C 1 C 2 C 3 130 +70 +90 +80 The
A project has the following forecasted cash flows:
| Cash Flows ($ thousands) | |||
| C0 | C1 | C2 | C3 |
| 130 | +70 | +90 | +80 |
|
| |||
The estimated project beta is 1.56. The market return rm is 18%, and the risk-free rate rf is 3%.
a. Estimate the opportunity cost of capital and the projects PV (using the same rate to discount each cash flow)
b. What are the certainty-equivalent cash flows in each year?
c. What is the ratio of the certainty-equivalent cash flow to the expected cash flow in each year?
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Sabotage The Business Of Finance
Authors: Ronen Palan
1st Edition
0141986247, 978-0141986241
