. Consider the problem of investing in a risky project. A project costs $500. The annual cash flow for the first year are $60 and grows at the rate of 3% annually. The risk free rate is 5%. The company WACC is 12%. . Suppose the project has an option to let you wait and decide whether to accept the project. You can invest now or next year or in two years. At the end of 2 years you either invest in the project or lose it since further deferral is not possible. The project analyst has done the calculations and has produced the binomial tree showing the cash flows from the project at future dates. Calculate the NPV of the project. p_up 0.40 $80 $70 $60 $60 $50 $40 ○ $783.21 ○ $563.45 ○ $166.67 ○ $666.67
. Consider the problem of investing in a risky project. A project costs $500. The annual cash flow for the first year are $60 and grows at the rate of 3% annually. The risk free rate is 5%. The company WACC is 12%. . Suppose the project has an option to let you wait and decide whether to accept the project. You can invest now or next year or in two years. At the end of 2 years you either invest in the project or lose it since further deferral is not possible. The project analyst has done the calculations and has produced the binomial tree showing the cash flows from the project at future dates. Calculate the NPV of the project. p_up 0.40 $80 $70 $60 $60 $50 $40 ○ $783.21 ○ $563.45 ○ $166.67 ○ $666.67
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:. Consider the problem of investing in a risky project. A
project costs $500. The annual cash flow for the first year
are $60 and grows at the rate of 3% annually. The risk free
rate is 5%. The company WACC is 12%.
. Suppose the project has an option to let you wait and
decide whether to accept the project. You can invest now or
next year or in two years. At the end of 2 years you either
invest in the project or lose it since further deferral is not
possible. The project analyst has done the calculations and
has produced the binomial tree showing the cash flows
from the project at future dates. Calculate the NPV of the
project.
p_up
0.40
$80
$70
$60
$60
$50
$40
○ $783.21
○ $563.45
○ $166.67
○ $666.67
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