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A project has a forecasted cash flow of $110 in year 1 and $121 in year 2. The interest rate is 5%, the estimated risk premium on the market is 10%, and the project has a beta of .5. If you use a constant risk-adjusted discount rate, what is:

a.) The PV of the project?
b.) The certainty-equivalent cash flow in year 1 and year 2?
c.) The ratio of the certainty-equivalent cash flows to the expected cash flows in years 1 and 2?

 

Basic Finance, Finance

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