Describes the certainty equivalent coefficient method, Financial Management

Assignment Help:

Q. Describes the Certainty Equivalent Coefficient Method?

Introduction: - Certainty equivalent coefficient process which makes adjustment against risk in the estimates of future cash inflows for a hazardous capital investment project.

In this process adjustment against risk is made in the estimates of future cash inflows of a risky capital project by adjusting to a conformist level of the estimated cash flows of a capital investment proposal by applying a correlation factor termed as certainty equivalent coefficient.

Formula for Computing Certainty Equivalent Coefficient: - The certainty equal coefficient is the ratio of riskless cash flow to risky cash flow. The certainty equal coefficient can be calculated with the help of the following formula:

Certainty Equivalent Coefficient = Riskless Cash Flow / Risky Cash Flow

(1) Riskless Cash Flow: - Riskless cash flow signifies the cash flow which the management expects when there is no risk in investment proposal.

(2) Risky Cash Flow: - Risky cash flow signifies the cash flow which the management expects when there is risk in investment proposal.


Related Discussions:- Describes the certainty equivalent coefficient method

Define the term shareholders, Shareholders Shareholders are usually ass...

Shareholders Shareholders are usually assumed to be interested in wealth maximisation. This though involves consideration of potential return and risk. Where a company is liste

Example on compound value of the single flow, Q. Example on compound value ...

Q. Example on compound value of the single flow? Mr. X invests Rs. 1000 at 10% is compounded yearly for three years. Compute value after three years. FV = PV (1+i) n FV

Show the advantages of irr method, Q. Show the Advantages of IRR Method? ...

Q. Show the Advantages of IRR Method? Advantages of IRR Method:- (i) Similar to the other DCF methods IRR methods as well take into consideration the time value of money.

Securities, Calculate the expected rate of return and risk of return

Calculate the expected rate of return and risk of return

Case let 1, which type of approaching to each firm

which type of approaching to each firm

Strategy of financial globalization, Question 1: (a) Highlight the mai...

Question 1: (a) Highlight the main benefits which Mauritius can reap from a strategy of financial globalization. (b) What are the problems with the internationalization of

Calculate the companys horizon value, A. Mitt starts Examine Your Zipper In...

A. Mitt starts Examine Your Zipper Incorporated ("XYZ") in 2012 by selling common stock of $12,000,000. He promises the investors in his company a 15% return on their capital. B

Need for simulation, Need for Simulation If the mathematical model set...

Need for Simulation If the mathematical model set up could always be optimized by the analytical approach, then, there would be no need for simulation. Only when interrelation

Constructing the binomial interest rate tree, The fundamental princip...

The fundamental principle is that when a tree is used to value an on-the-run issue, the resulting value should be arbitrage free i.e., it should be equal to the o

Expert , i have Passed all three level of CFA program and i want to join y...

i have Passed all three level of CFA program and i want to join you expert team. will you please tell me will this happen

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd