A firm is considering purchasing equipment to manufacture a new product. The equipment will cost $3M, and

Question:

A firm is considering purchasing equipment to manufacture a new product. The equipment will cost $3M, and expected net cash inflows are $0.35M indefinitely. If market demand for the product is low, then over the next five years the firm will have the option of discarding the equipment on a secondary market for $2.2M. Assume that = 12%, σ = 50%, and r = 6%. What is the value of this investment opportunity for the firm? MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...