|
Year
|
Net Cash flow ($)
|
PVIF
|
PV ($)
|
|
1
|
2569000
|
0.865469365
|
2223391
|
|
2
|
3220000
|
0.749037221
|
2411900
|
|
3
|
3220000
|
0.648269768
|
2087425
|
|
4
|
3220000
|
0.561056759
|
1806603
|
|
5
|
3220000
|
0.485577437
|
1563559
|
|
6
|
3220000
|
0.420252396
|
1353213
|
|
7
|
3220000
|
0.363715574
|
1171164
|
|
8
|
3220000
|
0.314784687
|
1013607
|
|
9
|
3220000
|
0.272436503
|
877246
|
|
10
|
3220000
|
0.235785447
|
759229
|
|
11
|
3220000
|
0.204065081
|
657090
|
|
12
|
3220000
|
0.176612076
|
568691
|
|
13
|
3220000
|
0.152852341
|
492185
|
|
14
|
3220000
|
0.132289019
|
425971
|
|
15
|
3220000
|
0.114492093
|
368665
|
|
16
|
3220000
|
0.099089399
|
319068
|
|
17
|
3220000
|
0.085758839
|
276143
|
|
18
|
3220000
|
0.074221648
|
238994
|
|
19
|
3220000
|
0.064236563
|
206842
|
|
20
|
3220000
|
0.055594777
|
179015
|
PV=$18,999,999
Project Cost: $19,000,000
Internal Rate of Return: $15.54424%
Use a 4.5% higher discount rate for the RADF method
CECF Approach:
|
Year 1:96%
|
Year 11:39%
|
|
Year 2:91%
|
Year 12:33%
|
|
Year 3:85%
|
Year 13:29%
|
|
Year 4:79%
|
Year 14:26%
|
|
Year 5:74%
|
Year 15:23%
|
|
Year 6:68%
|
Year 16:20%
|
|
Year 7:62%
|
Year 17:18%
|
|
Year 8:56%
|
Year 18:1 5%
|
|
Year 9:50%
|
Year 19:13%
|
|
Year 10:45%
|
Year 20:12%
|
Other information: APR: 8.25% Equity:15% (regular Projects) Debt:48%: Equity:52%
Question
1. Using the risk adjusted discount rate, assess the attractiveness of the project.
2. Using the certainty equivalent cash flow approach, assess the attractiveness of the project.
3. Do either of the adjustments change the decision? What would you recommend to the company?