• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

Certainty equivalent value

Forums › Ask CIMA Tutor Forums › Ask CIMA P3 Tutor Forums › Certainty equivalent value

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by Ken Garrett.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • November 4, 2019 at 7:17 pm #551558
    hoque247
    Participant
    • Topics: 3
    • Replies: 2
    • ☆

    A UK based company is considering an investment of GB£1,00,0000 in a project in the USA it is
    anticipated that the following cash flows will arise from this project.
    The cash flows will be either USD 4,00,000 with a probability of 40% or USD 7,00,000 with a
    with a probability of 60% for each of the next three years remitted to the UK at the end of each year
    GB £5,54,047
    GB £2,87,639
    GB £3,91,640
    GB £ (1,11,973)
    The CEO of HJ wishes to evaluate an investment using the certainty equivalent basis. The project involves
    an initial outflow of D$2m, There will be a single inflow in exactly one year after which the project will be
    concluded.
    The CEO believes that the expected value of the inflow from this project is D$5m. He believe that the most
    likely inflow will be D$4.2m. He would be prepared to accept a guranteed sum of D$3.5m as an alternative
    The cost of capital for this project is 8% and the risk-free rate is 3%. The one year discount factors for
    those rates are 0.926 and 0.971 respectively
    What is the net present value of this project on the certainly equivalent basis ?

    November 5, 2019 at 12:35 am #551568
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10594
    • ☆☆☆☆☆

    I don’t answer whole questions like this. If there is a specific part of your model answer you don’t understand, I will try to help, but we do not operate an answer factory.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • The topic ‘Certainty equivalent value’ is closed to new replies.

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • Ken Garrett on The Finance Function in the Digital Age – CIMA E1
  • DeborahProspect on ACCA SBR Specimen Exam 2 Question 1
  • darshan.69 on Chapter 9 Pension Schemes TX-UK FA2023
  • darshan.69 on Chapter 9 Pension Schemes TX-UK FA2023
  • Jarzin on The Finance Function in the Digital Age – CIMA E1

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in