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    Questions regarding Capital structure computations: NPV, certainty-equivalent

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    Attached is an excel sheet with problems regarding computation of capital structure. Please show all work so I can understand how you arrived at your conclusion.

    a. Compute the NPV of the two investments using the firm's cost of capital.
    Identify the preferred investment.

    b. Compute the NPV of the two investments using the certainty-equivalent
    approach. Identify the preferred investment.

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    Solution Summary

    In Excel, the problems are solved together with good narrative for better understanding.