Q 11.43. For convenience, assume a zero discount rate. You know that your current projects cost $400

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Q 11.43. For convenience, assume a zero discount rate. You know that your current projects cost $400 today and will truly return $500 next year--but your investors believe they will return only $400. In ad- dition, you have no cash on hand and can only raise financing for new projects by issuing more equity. A new project costs $200 and will return $220 next year. Your investors mistakenly believe that your firm will earn an internal rate of return of 0%, either with or without this new project. Acting on behalf of your existing investors, should you take this project? Does it have a positive NPV?

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Corporate Finance

ISBN: 9780984004911

3rd Edition

Authors: Ivo Welch

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