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assume there is no option to delay or abandon the project.  Instead, if the tax is not imposed, the company has the option to purchase an adjacent property 2 years from now for $1.5 million. If the property is purchased, there is 65% probability that it will generate additional net cash inflows of $400 000 for each of the remaining years of the project’s life (13 years).  There is a 35% probability that the cash flows will be $200 000. What is the project’s expected NPV if the growth option is incorporated into the calculation?

assume there is no option to delay or abandon the project.  Instead, if the tax is not imposed, the company has the option to purchase an adjacent property 2 years from now for $1.5 million. If the property is purchased, there is 65% probability that it will generate additional net cash inflows of $400 000 for each of the remaining years of the project’s life (13 years).  There is a 35% probability that the cash flows will be $200 000. What is the project’s expected NPV if the growth option is incorporated into the calculation?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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assume there is no option to delay or abandon the project.  Instead, if the tax is not imposed, the company has the option to purchase an adjacent property 2 years from now for $1.5 million. If the property is purchased, there is 65% probability that it will generate additional net cash inflows of $400 000 for each of the remaining years of the project’s life (13 years).  There is a 35% probability that the cash flows will be $200 000.

What is the project’s expected NPV if the growth option is incorporated into the calculation?                                                                  

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