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1. The decision to invest in the Mark II must be made after three years, in 1985. fixed. 3. Forecasted cash inflows of the Mark

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1. The decision to invest in the Mark II must be made after three years, in 1985. fixed. 3. Forecasted cash inflows of the Mark II have a present value in 1985 of $837 million and $484 million (837/1.23=484 ) in 1982 . 4. The future value of the Mark II cash flows is highly uncertain. This value evolves as a stock price does with a standard deviation of 41% per year. 5. The annual interest rate is 11%. How does the value of the option to invest in the Mark II in 1982 change if: a. The investment required for the Mark II is $830 million (vs. $930 million)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. The present value of the Mark II in 1982 is $530 million (vs. $484 million)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. The standard deviation of the Mark II's present value is only 26% (vs. 41% )? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 1. The decision to invest in the Mark II must be made after three years, in 1985. fixed. 3. Forecasted cash inflows of the Mark II have a present value in 1985 of $837 million and $484 million (837/1.23=484 ) in 1982 . 4. The future value of the Mark II cash flows is highly uncertain. This value evolves as a stock price does with a standard deviation of 41% per year. 5. The annual interest rate is 11%. How does the value of the option to invest in the Mark II in 1982 change if: a. The investment required for the Mark II is $830 million (vs. $930 million)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. The present value of the Mark II in 1982 is $530 million (vs. $484 million)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. The standard deviation of the Mark II's present value is only 26% (vs. 41% )? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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