Problem: A project has the following forecasted cash flows:
C0 C1 C2 C3
-100 +40 +60 +50
The estimated project beta is 1.5. The market return is 16 percent. The risk-free rate is 7 percent.
a. What is the opportunity cost of capital?
b. What is the project's net present value?
c. What are the certainty equivalent cash flows in each year?
d. With the information you have been given, is this project worthwhile or not?