Consider a risky project x that has the following payoff and probability distribution table: Payoff $1 $4 $16 Probability 0.2 0.5 0.3 a. Compute the expected value, EV, of project x. (2 marks) b. Suppose another investor, Mrs. Donna Nash, has a utility function given by the function g(x)= 0.4*x^2 Compute CE, the certainty equivalence, of x for our investor. (4 marks) Is Mrs. Nash risk-neutral, risk-averse, or risk-loving? Explain (2 marks) 2. (12 marks) Consider a savings accounts model. At time t=0, you invest $20,000 in RBC bank. RBC provides 12% return in year 1, 12% return in year 2, and 15% return in year 3. At the end of year 1, you withdraw $4,400. At the end of year 2, you withdraw $1,210. Your discount rate is 10% per year. (a) Use FCF valuation model to calculate the NPV of your investment at time t=0 (6 marks) (b) Compute RI (residual income) for year 2, and year 3. (6 marks) RI = actual income required income. Show calculations as illustrated in the calculation of RI for year 1. RI for year 1 is: $2,400 10%*$20,000 = $400. 3. (8 marks) The lease payments from footnote disclosures of an operating lease Year Lease payments ($) 1,375 1,210 825 Year 4 and after 4,125 Required: Assume a 10% discount rate and a tax rate of 40%, so that the PV of all the lease payments is $5,220. Complete the I/S figures Income Statement Effects (8 marks) As Reported Adjustment Adjusted NOPAT $1,500 ?? ?? INT(1-tax rate) 475 ?? ?? NI $1,025 ?? ??