Evaluate certainty equivalent coefficient, Financial Management

Assignment Help:

Q. Evaluate Certainty Equivalent Coefficient?

Illustration: - Presume the risky cash flow is Rs. 200000 and the riskless cash flow is Rs. 140000.

The Certainty Equivalent Coefficient =  140000 /  200000 = 0.7      

Steps occupied in Certainty Equivalent Coefficient Method: - The variety of steps involved in the certainty equivalent coefficient method is:

(1) First Step: - Initially the certainty comparable coefficient has to be calculated for each year of a project.

(2) Second Step: - Secondly the risk-adjusted cash flow of a project for every year has to be calculated. The risk-adjusted cash flow of a year is able to be calculated as follows:

Risk-Adjusted Cash Flow = Estimated Cash flow for the year X Certainty Equivalent Coefficient

(3) Third Step: - Thirdly we have to determine the present value of the capital project. The present value of the Capital Project is able to be found by adopting the following procedure. Initial the risk-adjusted cash flow for every year should be multiplied by the present value factor or discount factor applicable to that year to get the present value of the risk-adjusted cash flow of every year.

(4) Fourth Step: - Fourthly we have to conclude the net present value of the project. The net present value of the project will be

Present Value of the Project                                                   -----------

Less: Initial Investment on the Project                                   -----------

Net Present Value of the Project                                            -----------

 (5) Fifth Step: - Subsequent to the NPV of a project is calculated decision is taken as to the selection of the project.


Related Discussions:- Evaluate certainty equivalent coefficient

Absolute performance standard, Absolute Performance Standard is a method of...

Absolute Performance Standard is a method of measuring an organization's development and how effective and efficient it is at operating its business. The absolute performance stand

Hedge funds, Hedge Funds: Hedge Funds are investment partnerships that ...

Hedge Funds: Hedge Funds are investment partnerships that strive for above average returns through active portfolio management and whose primary compensation is a percentage of

Computation of working capital, Will you please define the working capital ...

Will you please define the working capital and Calculation of working capital? I need urgent help in my assignment. help me!

Ratio analysis and company valuation, As an investment advisor, you have be...

As an investment advisor, you have been approached by a group of professional investors (probably who already have a well-diversified portfolio). They are considering investing in

Bonds with embedded put options, Put option is the right of the inves...

Put option is the right of the investor which he may exercise on the date at the put price given in the indenture. Normally, put price is in par value. When yield rises

Which ratios would a banker be most interested, Which ratios would a banker...

Which ratios would a banker be most interested in when considering whether to approve an application for a short-term business loan? Explain. Bankers and another lenders use li

WACC, WHAT ARE THE MAIN VIEWS OF WACC PREVALENT IN THE FINANCIAL MANAGEMENT...

WHAT ARE THE MAIN VIEWS OF WACC PREVALENT IN THE FINANCIAL MANAGEMENT LITERATURE

Process of financing working capital, Q. Process of financing working capit...

Q. Process of financing working capital? Working capital policies on the process of financing working capital can be characterised as moderate, conservative and aggressive. A c

Determining optimum liquid balance, Q. Determining Optimum Liquid Balance? ...

Q. Determining Optimum Liquid Balance? Liquid balance (balance of cash and marketable securities) must be maintained at the optimum level. It is the level which gives the minim

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