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ST14.1 Certainty Equivalent Method. MacKenzie-Rabb, Inc., is a Texas-based manufacturer and distributor of components and replacement parts for the auto, machinery, farm, and construction equipment industries. The company is currently funding a program of capital investment that is necessary to reduce production costs and thereby meet an onslaught of competition from low-cost suppliers located in Mexico and throughout Latin America. MacKenzie-Rabb has a limited amount of capital available and must carefully weigh both the risks and potential rewards associated with alternative investments. In particular, the company seeks to weigh the advantages and disadvantages of a new investment project, project X, in light of two other recently adopted investment projects, project Y and project Z:

Expected Cash Flows After Tax (CFAT) per Year

Year Project X Project Y Project Z

Expected Cash Flows After Tax (CFAT) per Year

Year Project X Project Y Project Z

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