banner_ad

FM CE approach in capital budgeting

IPCC 1083 views 6 replies
if the Cash flows from a project with return of 15% is rs. 90L
and the risk free rate is 4% and risk premium is 9%, then what is the Certainty equivalent?
Replies (6)
Certainty equivalent cash flow = expected cash flow / (1 + risk premium)
so the answer should be
90L÷(1.9) ??
the answer is
90L÷(1.11)
I don't know how it's come
Risk premium here=adjusted rate of return -RF i. e 15%-4%=11% ..... So the answer is 90/1.11 and not 90/1.09

Hope now ur query is resolved.... In CE method we take adjusted rate of reretu on which cash flow is discounted  .. Here i. e 15 percent.... And risk preprem calculate accordingly 

Certainty Equivalent and Cash Flow. The risk premium is calculated as the risk-adjusted rate of return minus the risk-free rate.


CCI Pro

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register  

Company
29 May 2026
Company Secretary - Part time

Shaswat initial support private limited

Ahmedabad

CS

View Details
Company
ARTICLESHIP 27 May 2026
CA Article Trainee

Rahul Dang & Associates-Chartered Accountants

Pune

CA Inter

View Details
Company
23 May 2026
Article Assistant

Geeta Manchanda & CO.

New Delhi

CA Inter

View Details
Company
26 May 2026
Education Content Creator

Adyayam Education LLP

Bengaluru

CA Foundation

View Details
Company
ARTICLESHIP 31 May 2026
Article Assistant

KPRS And Associates

New Delhi

CA Inter

View Details
Company
18 May 2026
MIS Executive

Primarc Pecan Retail Limited

Mumbai

B.Com

View Details
Company
Featured 28 May 2026
SEMI QUALIFIED/ CA DROPOUTS/ ARTICLES

T R SOOD & CO

New Delhi

CA Inter

View Details
Company
ARTICLESHIP 23 May 2026
Article Assistants

Acupro Consulting

Gurgaon

CA Inter

View Details