Answer: $228.35
Explanation:
The Certainty Equivalent Cashflow is the amount that the project is expected to generate if it were invested in a risk free asset and then discounted at the company's required return.
[tex]= \frac{Expected cashflow * (1 + riskfree rate)^{no. of periods} }{(1 + required return)^{no. of periods} }[/tex]
Required return = Risk free rate + beta * market premium
= 5% + 1.25 * 8%
= 15%
Certainty equivalent cash flow
[tex]= \frac{300 * (1 + 0.05)^{3} }{(1 + 0.15)^{3} } \\\\= 228.35[/tex]
= $228.35
