Project Alpha offers the following net cash flows following an initial (year 0), certain outlay (NINV) of $70,000:
|
Year
|
Net Cash Flow
|
Certainty Equivalent Factor
|
|
1
|
$30,000
|
0.91
|
|
2
|
30,000
|
0.79
|
|
3
|
30,000
|
0.65
|
|
4
|
20,000
|
0.52
|
|
5
|
20,000
|
0.40
|
|
6
|
10,000
|
0.30
|
a. Compute the NPV of this project at a 17 percent cost of capital.
b. If the risk-free rate is 8 percent, what is the certainty equivalent NPV for project Alpha?