The application of the decision criteria npv

Assignment Help Financial Management

Reference no: EM132067493

RADR and Certainty Equivilants

Use both risk-adjustment techniques, certainty equivalence and RADR, for the application of the Decision Criteria NPV using the following information and cash flow.

The project is considered to be of high risk, the initial investment is $45,000, the Annual operating cash flow is expected to be $15,000 per year for four years, and the terminal value is expected to be $5,000.

You are certain of the initial investment, but your certainty declines by 5% each year of the forecast (as such, you are 95% certain for the first AOCF).

The risk free rate is currently 4%, low risk investments use a discount rate of 6%, medium risk of 8% and high risk of 14%.

Reference no: EM132067493

Questions Cloud

What methodology are you using to solve : What methodology are you using to solve (Excel, Caculator or Formula)? Identify the formula and show relevant work to reach your solution.

Should the firm own the property : The questions are based on the on the Lease versus Own and Sale/Leaseback Analysis values below Please show calculations.

Prospect of future franchise expansion : How would a parent company competing against franchisees affect the franchisees and the prospect of future franchise expansion?

Understanding organizational behavior : "Understanding organizational behavior has never been more important for managers. Because of the dramatic changes now taking place

The application of the decision criteria npv : Use both risk-adjustment techniques, certainty equivalence and RADR, for the application of the Decision Criteria NPV using the following information.

Concept of marketing and the marketing concept : What is the distinction between the concept of marketing and the marketing concept?

Difference between the master budget and the flexible budget : For fixed manufacturing costs, the difference between the master budget and the flexible budget is equal to zero.

What is the gain or loss on the futures contract : If annual interest rates go down by 1.5 percentage point, what is the gain or loss on the futures contract?

Master budget and my flexible budget for total costs : This is a telemarketing company and our standard is that call for $450 of sales per hour of telephone calling time.

User Account

All Pages