20. Games Unlimited Inc. is considering a new game that would require an investment of $22.0 million. If the new game is well received, then the project would produce cash flows of $9.5 million a year for 3 years. However, if the market does not like the new game, then the cash flows would be only $6.0 million per year. There is a 50% probability of both good and bad market conditions. The firm could delay the project for a year while it conducts a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows would be the same whether the project is delayed or not. If the WACC is 8.8%, what is the value (in thousands) of the investment timing option? Do not round intermediate calculations.

20. Games Unlimited Inc. is considering a new game that would require an investment of $22.0 million. If the new game is well received, then the project would produce cash flows of $9.5 million a year for 3 years. However, if the market does not like the new game, then the cash flows would be only $6.0 million per year. There is a 50% probability of both good and bad market conditions. The firm could delay the project for a year while it conducts a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows would be the same whether the project is delayed or not. If the WACC is 8.8%, what is the value (in thousands) of the investment timing option? Do not round intermediate calculations.

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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Project X has an initial investment at time O of $1,000 and it returns $250 one year from now and$1,000 two years from now. Project Y has an initial investment at time O of $2,000 and it returns$2,534.40 two years from now. The risk level and the net present values of the two projects areequal. Calculate the required return for project X. Answer: 12% please do not solve with excel
An investment project requires an initial payment of $500,000, and then will earn a constant return of $45,000 every year forever. Is this a profitable investment project? Oyes, it is profitable O you can't tell with this information Ono, it is not profitable
martin development company is deciding whether to proceed with Project X. The cost would be $9 million in year 0, there is a 50% chance that X would be hugely successful and would generate a cash after tax flow of $6 million per year during years 1, 2 and three. however there is a 50% chance that X would be less successful and would generate only $1 million per year for the three years. If Project X is hugely successful it would open the door to another investment project why which would require an outlay of 10 million dollars at the end of year 2. project Y would then be sold to another company at a price of $20 million at the end of year 3 Martins weighted average cost of capital is 11%. A)if the company does not consider real options what is Project X expected NPV? b) What is X is expected NPV with the growth option? c)what is the value of the growth option?
A project has two possible outcomes. The good outcome returns $9,000 next year and occurs 59% of the time. The bad outcome is total failure, retuming $0 , the rest of the time. If the risk free interest rate is 3.2% , the expected market return is 12.6% , and the project beta is 1.1 , what is the price of the project today?
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A new computer system will require an initial outlay of $17,500, but it will increase the firm’s cash flows by $3,500 a year for each of the next 8 years. How high can the discount rate be before you would reject the project?
solve it correctly. not use excel
Adam Andler Corp is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC or cost of capital Net investment cost (depreciable basis) The salvage value of its equipment No other fixed assets will be acquired for following years The company will require an increase in net working capital at the $10,000 beginning The company will liquidate all working capital at the end of the project -10,000 Units sold (constant through years) 60,000 $30.00 $50,000 $17.00 Average price per unit, Year 1 Fixed operating…
CVD Ltd needs to choose from three mutually exclusive projects. The net cash flows from the projects will depend on market demand. All of the projects will last for only one year. The forecast net cash flows and their associated probabilities are given below:Market Demand Probability Weak 0.20 Average 0.50 Good 0.30 Market Demand Project A Project B Project C Weak R450 000 R350 000 R550 000 Average R550 000 R400 000 R500 000 Good R650 000 R450 000 R700 000 Required:Calculate the expected value of the net cash flows from each of the three projects.
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