*Handwritten Answer only*

The Textile Manufacturing Company Ltd. is considering one of two mutually exclusive proposals, Projects M and N which require cash outlays of Rs. 8,50,000 and Rs. 8,25,000 respectively. The certainty-equivalent (C.E.) approach is used in incorporating risk in capital budgeting decisions. The current yield on government bonds is 6% and this used as the risk-free rate. The expected net cash flows and their certainty equivalent are as follows: Project M Project N Cash flow Cash flow Certainty equivalent Certainty equivalent Year-ended (Rs) (Rs) 1 4,50,000 0.8 4,50,000 0.9 2 5,00,000 0.7 4,50,000 0.8 3 5,00,000 0.5 5,00,000 0.7 Present value factors of Rs. 1 discounted at 6% at the end of year 1, 2 and 3 are 0.943, 0.890 respectively. Required: (0) Which project should be accepted? (ii) If risk adjusted discount rate method is used, which project would be appraised with a higher rate