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

Determine the preference shares - equity instruments, Determine the Prefere...

Determine the Preference Shares - Equity Instruments Sandwiched between equity share holders anddebt holders, preference share holders have promise of an assured dividend from

Evaluate the vulnerability, Assume you are a professional financial analyst...

Assume you are a professional financial analyst working for a wealthy investor.  Your client has $2.6 million to invest and wants to sink it into a single stock (diversification is

Strategies of hedge funds, Strategies of Hedge Funds: Hedge funds use ...

Strategies of Hedge Funds: Hedge funds use a range of different strategies, and each fund manager can argue that he or she is unique and could not be compared to other manager

Business, Ken started college at the age of 18 with $63,450 already saved, ...

Ken started college at the age of 18 with $63,450 already saved, because 18 years ago his saving account 7.25 per year.

Show certificates of deposits, Q. Show Certificates of Deposits? Certif...

Q. Show Certificates of Deposits? Certificates of Deposits: Certificate of deposits is papers issued by banks acknowledging fixed deposits for a specified period of time. CPs i

State about the country analysis and political risk, Country analysis and p...

Country analysis and political risk Country analysis could use tools for example PEST factors in order to strategically analyse countries. Political risk

Financial analysis and interpretation , You have been to carry out the foll...

You have been to carry out the following work: To provide a financial analysis and interpretation of one London stock Exchange registered company. The senior Partner has

Determinants of the repo rate, Repo rates vary from transaction to tr...

Repo rates vary from transaction to transaction. They depend upon a variety of factors like: Collateral's quality Repo term

What do disclaimer of opinion, Disclaimer of Opinion - Statement by an AUDI...

Disclaimer of Opinion - Statement by an AUDITOR indicating inability to express an opinion on the fairness of FINANCIAL STATEMENTS provided and reason for the inability. The audito

Calculate amount of first coupon payment your organization, Your firm has p...

Your firm has presently issued five year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4%.  What is the amount of first coupon payment your organization will pa

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