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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
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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