Answer:
Option d. $30,028,394.34
Explanation:
We can calculate certainty equivalent NPV by just a simple formula
Certainly equivalent NPV = Certain cashflow/(1+r)^n
Certain cashflows =Net cashflows x Certainty equivalent factor
r = risk free rate
At first, we need to find certain cash flows
Certain cash flow
Year1: $15,000,000 x 0.90 = $13,500,000
Year2: $13,000,000 x 0.80 = $10,400,000
Year 3: $11,000,000 x 0.60 = $6,600,000
Year 4: $9,000,000 x 0.35 =$3,150,000.
Certainly Equivalent NPV = [$13,500,000 / (1+0.06)^1] + [$10,400,000 / (1+0.06)^2] + [$6,600,000 / (1+0.06)^3] + [$3,150,000 / (1+0.06)^4]
Certainly Equivalent NPV = $12,735,849.06 + $9,255,962.98 + $5,541,487.27 + $2,495,095.04 = $30,028,394.34
