A project with an initial cost of GH¢ 500,000 has the following forecasted cash inflows: Year Cashflows (GH¢) 1 150,000 2 200,000 3 250,000 4 300,000 5 320,000 The estimated project beta is 1.2. The...

A project with an initial cost of GH¢ 500,000 has the following forecasted cash inflows:

The estimated project beta is 1.2. The market return is 19%, and the risk-free rate is 10%.

Required:

1. Compute the opportunity cost of capital and the project’s Present Value (

2. Indicate the annual Certainty Equivalent cash flow to the expected cashflow in each case?

3. What is the ratio of Certainty Equivalent cashflow to the expected cashflow in each case?

4. What is the meaning of this ratio? and Why does this ratio declines?