years cash flows CEC

0 -6000 1
1 4000 0.9
2 3000 0.7
3 2000 0.5
4 1000 0.3

NPV without CEC 2301.35

CEC certainty equivalent coefficient

cash flows post CEC discounted cash flows
-6000 -6000
3600 3272.73
2100 1735.54
1000 751.31
300 204.90
NPV -35.52
 years cash flows cash flows with Rf
0 -150000 -150000
1 30000 26785.71
2 45000 35873.72
3 50000 35589.01
4 50000 31775.90
5 60000 34045.61
NPV 14069.97
risk free
discount rate discount rate for risky
12% projects
risk premium
for high risk
projects
4%
cash flows with RADR
-150000
25862.07
33442.33
32032.88
27614.55
28566.78
-2481.38

16%