The ‘wood pulp’ project has an initial cost of £13,000 and the firm’s risk-free interest rate is 10 per cent. If certainty equivalents and net cash flows (NCF) for the project are as below, should the project be accepted?
|
Year |
Certainty equivalents |
Net cash flows (£) |
|
1 |
0.90 |
8,000 |
|
2 |
0.85 |
7,000 |
|
3 |
0.80 |
7,000 |
|
4 |
0.75 |
5,000 |
|
5 |
0.70 |
5,000 |
|
6 |
0.65 |
5,000 |
|
7 |
0.60 |
5,000 |
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