A project has the following forecasted cash flows: Cash Flows ($ thousands) C0 C1 C2 C3 ?125 +67 +85 +75 The estimated project beta is...

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Finance

A project has the following forecasted cash flows:
Cash Flows ($ thousands)
C₀ C₁ C₂ C₃
?125 +67 +85 +75
The estimated project beta is 1.55. The market returnr_m is 17%, and the risk-free rater_f is 7%.
a. Estimate the opportunity cost of capital andthe project’s PV (using the same rate to discount each cash flow).(Do not round intermediate calculations. Enter your cost ofcapital answer as a percent and enter your PV answer in thousands.Round your answers to 2 decimal places.)
Cost of capital %
PV $
b. What are the certainty-equivalent cash flowsin each year? (Do not round intermediate calculations.Enter your answers in thousands rounded to 2 decimalplaces.)
Year Certainty-Equivalent
Cash Flow
1 $
2 $
3 $
c. What is the ratio of thecertainty-equivalent cash flow to the expected cash flow in eachyear? (Do not round intermediate calculations. Round youranswers to 4 decimal places.)
Year Ratio
1
2
3

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Transcribed Image Text

A project has the following forecasted cash flows:Cash Flows ($ thousands)C0C1C2C3?125+67+85+75The estimated project beta is 1.55. The market returnrm is 17%, and the risk-free raterf is 7%.a. Estimate the opportunity cost of capital andthe project’s PV (using the same rate to discount each cash flow).(Do not round intermediate calculations. Enter your cost ofcapital answer as a percent and enter your PV answer in thousands.Round your answers to 2 decimal places.)Cost of capital%PV$b. What are the certainty-equivalent cash flowsin each year? (Do not round intermediate calculations.Enter your answers in thousands rounded to 2 decimalplaces.)YearCertainty-EquivalentCash Flow1$2$3$c. What is the ratio of thecertainty-equivalent cash flow to the expected cash flow in eachyear? (Do not round intermediate calculations. Round youranswers to 4 decimal places.)YearRatio123