Q3) Example: a project whose initial cost = $75 million, Cost of Capital = 10%, risk-free...
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Q3) Example: a project whose initial cost = $75 million, Cost of Capital = 10%, risk-free rate= 6%, cash flows occur for 3 years. The probability distribution of its cash flows for each year is as follows: (3 marks) Demand High Average Low Probability 30% 40% 30% a) What is the E(NPV) if the project is implemented now? (1 marks) b) What is the E(NPV) if the firm waited for one year? (2 marks) Annual cash flow $50 $35 $20 Q3) Example: a project whose initial cost = $75 million, Cost of Capital = 10%, risk-free rate= 6%, cash flows occur for 3 years. The probability distribution of its cash flows for each year is as follows: (3 marks) Demand High Average Low Probability 30% 40% 30% a) What is the E(NPV) if the project is implemented now? (1 marks) b) What is the E(NPV) if the firm waited for one year? (2 marks) Annual cash flow $50 $35 $20
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a To calculate the ENPV of the project if it is implemented now we need to find the expected cash fl... View the full answer
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