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Q. An industry is considering an investment project that is expected to generate a net cash flow of Rs. 200,000 per year for three years and initial cost of investment is Rs. 480,000. Risk free discount rate is 10 percent and perceived risk premium is 4 percent.

(i) Estimate net Current value of investment under risk free interest rate and with risk adjusted discount rate.

(ii) State where industry would undertake investment under two scenarios

(iii) If manager regarded certain sum of Rs. 186,000 as equivalent to risky net cash flow, Estimate certainty-equivalent coefficient

(iv) Would industry undertake investment under certainty-equivalent approach?

 

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M9292892

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