A risky $ 1,000 investment is expected to generate the following cash flows: Year 1 2 3 $600 $600 $600 a. If the firm's cost capital is 10 percent, should the investment be made? b. An alternative use...

A risky $ 1,000 investment is expected to generate the following cash flows:

Year                               1                     2                       3

               $600              $600             $600

a. If the firm's cost capital is 10 percent, should the investment be made?

b. An alternative use for the $1,000 is a three-year U.S. Treasury note that pays $50 annually and repays the $1,000 at maturity for an annual risk-free return of 5 percent. Management believes that the cash inflows from the risky investment are only equivalent to 70 percent of the certain investment. Does this information alter the decision in (a)?