Question

In your own words, What is the certainly equivalent approach?

In your own words, What is the certainly equivalent approach?

Answer : The approach to deal risks with capital budgeting, in which uncertain cashflows are converted in to certain cashflows to make refrence for the decision maker is called certainty equivalent approach. It is the risk free cashflows approach. While applying this approach, it is the guranteed amount of cash that would yield the same exact expected utility as a given risky asset with absolute certainty.

Formula to calculate certainty equivalent cashflow :

Certainty equivalent cash flow = expected cash flow / (1 + risk premium)

Earn Coins

Coins can be redeemed for fabulous gifts.

Need Online Homework Help?

Most questions answered within 1 hours.

Active Questions
• The mass m1 on a smooth table is connected to the mass m2 which moves only...
• Florin and Guilder are two countries separated by a narrow sea. They use currencies called, respectively,...
• determine the net allowable bearing capacity for 1.1 × 1.7 m foundation with limiting settlement of...
• O’Connor Ltd started business on 31 March 2010 in the recycling industry. The company balances its...
• The population proportion is 0.38. What is the probability that a sample proportion will be within...
• You have constructed a quinhydrone concentration cell with buffers of pH = 4.2 and pH =...
• Management action and stock value   REH​ Corporation's most recent dividend was \$ 1.98 per​ share, its...
• In triangle ABC , let the bisectors of angle b meet AC at D and let...
• What should the return type of the following function be? [returnType] printName(string fName, string lName){ cout...
• carol s smart wants to determine if her favourite gene is expressed in liver tissue. she...
• In the mitochondria, NADH donates its electrons to NADH-Q oxidoreductase, and from there the electrons move...