Prince Inc. is considering purchasing a new machine with a useful life of five years. The initial investment for the machine is $195,000. The expected cash flows and certainty equivalents are as follows:

Certainty

Year Cash-flow Equivalent

1 61,000 .95

2 61,000 .90

3 61,000 .80

4 61,000 .70

5 61,000 .65

Assume that the risk-adjusted discount rate is 13%, the firm's cost of capital is 10% and the risk-free rate is 3%

A. Using the certainty equivalent approach calculate the net present value.

B. Using the risk-adjusted discount rate approach calculate net present value.