Description
FIN3701 Assignment 1 Semester 2 Memo | Due 21 August 2025. All questions fully answered, QUESTION 1 [20 marks]
Bakoni Enterprises is considering investing in either of two mutually exclusive projects. Cash flows associated with the two independent investments are given below. The risk-free rate is 8% and the risk premium is 2%.
Project A
Year
Cash flows
Certainty equivalents
0
500 000
1.00
1
250 000
0.80
2
160 000
0.70
3
120 000
0.60
4
100 000
0.50
5
90 000
0.40
Project B
Year
Risk-adjusted cash flows
0
850 000
1
350 000
2
300 000
3
250 000
4
210 000
5
150 000
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