Centennial Catering Inc. (CCI) is considering two mutually exclusive investments. It wishes to

use two different evaluation methods Certainty Equivalents (CE) and Risk-adjusted rate of

return (RADR - CAPM) model. The cost of capital for CCI is 12% and the current risk-free rate

is 7%. Cashflows associated with the two projects are as follows.

	Project A	Project B
Investment Cost	70,000	78,000
Year 1
1	30,000	22,000
2	30,000	32,000
3	30,000	38,000
4	30,000	46,000

A) Use the Certainty Equivalent approach to calculate the Net Present Value of the projects

given the following CE factors.

Year 1	Project A	Project B
1	0.85	0.95
2	0.9	0.9
3	0.95	0.8
4	0.95	0.8

B) Use the Risk-adjusted Rate of return approach to calculate the NPV of each project given the project A had a risk index (R1) of 1.20 and Project B has a rish index of 1.40. USe the following equation to calculate the required project return for each:

Kj= RF+ [ RI x (Ka- RF)]

C)Explain why the results of the two approaches may differ from one another. Which project would you choose? Why