The use of certainty-equivalent cash flows can help in the following ways:
I.there is no need to estimate future prices;
II.there is no need to estimate the discount rate;
III.there is no need to estimate the quantity of commodity produced
A)I only
B)II only
C)I and II only
D)I, II, and III

Question

Quizplus · Accepted Answer

The use of certainty-equivalent cash flows eliminates the need to estimate future prices and discount rates, making it easier to calculate the cash flows in present terms. However, it does not eliminate the need to estimate the quantity of commodity produced, as that is a key input for generating cash flows. Therefore, options I and II are correct but option III is incorrect.

The Use of Certainty-Equivalent Cash Flows Can Help in the Following