Question
Billy Bob is considering building a water slide park that will require a net investment of $200,000 and yield the following net cash flows: Year
Billy Bob is considering building a water slide park that will require a net investment of $200,000 and yield the following net cash flows:
| Year | Net Cash Flows | Cert. Equiv. Factor |
| 1 | $120,000 | 0.90 |
| 2 | $90,000 | 0.80 |
| 3 | $60,000 | 0.65 |
| 4 | $30,000 | 0.50 |
| 5 | $10,000 | 0.30 |
If the risk-free rate is 8 percent and the market risk premium is 6 percent, what is the certainty equivalent NPV for this project?
| a. | $11,025 | |
| b. | $5,746 | |
| c. | $12,805 | |
| d. | $3,703 |
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Global Strategy
Authors: Mike W. Peng
5th Edition
9780357512364
