The Seminole Production Company is analyzing the investment in a new line of business machines. The initial outlay required is $31 million. The net cash flows expected from the investment are as follows: Year Net Cash flow (Million) $7 11 1 2 3 18 4 23 5 20 6 19 7 14 The firm's cost of capital (used for projects of average risk) is 15 percent. Use Table II to answer the questions below. Enter your answers in millions. For example, an answer of $1.211 million should be entered as 1.211, not 1,211,000. Round your answers to three decimal places. a. Compute the net present value of this project assuming it possesses average risk. million At a 15% rate, the project is -Select- b. Because of the risk inherent in this type of investment, Seminole has decided to employ the certainty equivalent approach. After considerable discussion, management has agreed to apply the following certainty equivalents to the project's cash flows: $ b. Because of the risk inherent in this type of investment, Seminole has decided to employ the certainty equivalent approach. After considerable discussion, management has agreed to apply the following certainty equivalents to the project's cash flows: at Year 0 1.00 1 0.90 2 0.85 3 0.75 4 0.70 5 0.60 6 0.45 7 0.35 If the risk-free rate is 11 percent, compute the project's certainty equivalent net present value. $ million c. On the basis of the certainty equivalent analysis, should the project be accepted? The project is -Select- Check My Work (1 remaining) TABLE Present Value Interest Factor (PVIF) ($1 at i % per period for a periods): PV, PV, PVIF. 1 PVIF Periodo 0 1.000 1 0.990 2 0980 3 0971 4 0.961 5 0.951 6 0.942 7 0933 8 0.923 9 0.914 10 0.905 11 0.896 12 0.887 13 0.879 14 0.870 15 0.861 16 0.853 17 0944 18 0.836 19 0.828 20 0.820 24 0.789 25 0.780 30 0.742 40 0672 50 0609 60 0.550 1.000 0.926 0.857 0.794 0.735 0681 0.630 0583 0.540 0.500 0.463 0429 0.397 0.368 0.340 0.315 0.292 0270 0.250 0.232 0.215 0.158 0.146 0.099 0.046 0.021 0.010 1.000 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.102 0.092 0.057 0.022 0.009 0.003 1.000 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124 0.082 0.074 0.04 0.015 0.005 0.002 13% 1.000 1.000 0.893 0.885 0.797 0.783 0.712 0.693 0.636 0.613 0.567 0.543 0.507 0.480 0,452 0.425 0.404 0.376 0.361 0.333 0.322 0.295 0.287 0.261 0.257 0.231 0.229 0.204 0.205 0.181 0.183 0.160 0.163 0.141 0.146 0.125 0.130 0.111 0.116 0.098 0.104 0.087 0.066 0.053 0.059 0.047 0.033 0.026 0.011 0.008 0.003 0.002 0.001 0.001 7% 1.000 1.000 1.000 1.000 1.000 1.000 0.980 0971 0.962 0.952 0.943 0.935 0.961 0943 0.925 0.907 0.890 0.873 0.942 0915 0.889 0.864 0.840 0.816 0.924 0.889 0.855 0.823 0.792 0.763 0.906 0863 0.822 0.784 0.747 0.713 0.888 0.838 0.790 0.746 0.705 0.666 0.871 0.813 0.760 0.711 0.665 0.623 0.853 0.789 0731 0677 0.627 0.582 0.837 0.766 0.703 0645 0.592 0.544 0.820 0.744 0.676 0614 0.558 0.508 0.804 0.722 0.650 0585 0.527 0.475 0.788 0701 0.625 0.557 0.497 0.444 0.773 0681 0.601 0.530 0.469 0.415 0.758 0.661 0.57 0.505 0.442 0.388 0.743 0642 0.555 0.481 0.417 0.362 0.728 0.623 0.534 0.458 0.394 0.339 0.714 0.605 0.513 0.436 0.371 0.317 0.700 0.587 0.494 0.416 0.350 0.296 0.686 0570 0.475 0.396 0.331 0.276 0.673 0.554 0.456 0377 0.312 0.258 0.622 0.492 0.390 0310 0.247 0.197 0.610 0.478 0.375 0.295 0.233 0.184 0.552 0.412 0.308 0.231 0.174 0.131 0.453 0307 0.208 0.142 0.097 0.067 0.372 0.228 0.141 0.087 0.054 0.034 0.305 0.170 0.095 0.054 0.030 0.017 159 185 19% 1.000 1.000 1.000 1.000 1.000 0.870 0.862 0.855 0.847 0.840 0.756 0.743 0.731 0.718 0.706 0.658 0.641 0.624 0.609 0.593 0.572 0.552 0.534 0.516 0.499 0.497 0.476 0.456 0.437 0419 0.432 0.410 0.390 0.370 0.352 0.376 0.354 0.333 0.314 0.296 0.327 0.305 0.285 0.266 0.249 0.284 0.263 0.243 0.225 0.209 0.247 0.227 0.208 0.191 0.176 0.215 0.195 0.178 0.162 0.148 0.187 0.168 0.152 0.137 0.124 0.163 0.145 0.130 0.116 0.104 0.141 0.125 0.111 0.099 0.088 0.123 0.108 0.095 0.084 0.074 0.107 0.093 0,081 0.071 0.062 0.093 0.080 0.069 0.000 0.052 0.081 0.069 0.059 0.051 0.044 0.070 0.060 0.051 0,043 0.037 0.061 0.051 0.043 0.037 0.031 0.035 0.028 0.023 0.019 0.015 0.030 0.024 0.020 0.016 0.013 0.015 0.012 0.009 0.007 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 1.000 0.917 0.842 0.772 0.708 0.650 0.596 0547 0.502 0.460 0.422 0389 0.356 0326 0.299 0.275 0.252 0.231 0212 0.194 0.178 0.126 0.116 0.075 0.032 0.013 0.006 24% 1.000 0.806 0.650 0524 0.423 0.341 0.275 0.222 0.179 0.144 0.116 0.094 0.076 0.061 0.049 0.000 0.032 0.026 0.021 0.017 0.014 0.006 0.005 0.002 0.000 0.000 0.000 0.769 Period, 14% 0 1.000 1 0.877 2 3 0.675 4 5 0.519 6 0.456 7 0.400 8 0.351 9 0.308 10 0.270 11 0.237 12 0.208 13 0.182 14 0.160 15 0.140 16 0.123 17 0.108 18 0.095 19 0.083 20 0.073 24 0,043 25 0.038 30 0.020 40 0.005 50 0.001 60 0.000 0.592 1.000 0.833 0.694 0579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.013 0.010 0.004 0.001 0.000 0.000 28% 1.000 0.781 0.610 0.477 0.373 0.291 0.227 0.178 0.139 0.108 0.085 0.066 0.052 0.040 1.000 0.758 0.574 0435 0.329 0.250 0.189 0.143 0.108 0.082 0.062 0.047 0.036 0.027 0.021 0.016 0.012 0.009 0.007 0.005 0.004 0.001 0.001 0.000 0.000 0.000 0.000 1.000 0.735 0.541 0398 0.292 0215 0.158 0.116 0.085 0.063 0.046 0.034 0.025 0.018 0.014 0.010 0.007 0.005 0.004 0.003 0.002 0.001 0.000 0.000 0.000 0.000 0.000 1.000 0.714 0.510 0.364 0.260 0.186 0.133 0.095 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 0.002 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.025 0.019 0.015 0.012 0.009 0.007 0.003 0.002 0.001 0.000 0.000 0.000