Question
1. Your firm has an opportunity to invest in a project that costs $579 and will return two payments of 500 per year. If the
1. Your firm has an opportunity to invest in a project that costs $579 and will return two payments of 500 per year. If the interest rate is 10% what is the current NPV of this project?
2. You are considering a project that offers up the following possible payout with an opportunity cost of 20%.
Time 0 1 2
Base Case -$60,000 10,000 10,000
At the end of year two you know there is a 10% possiblity you will buy out your competitor which has the potential to create opportunities that are worth $993,055 at that time.
How much potential value is created or lost by taking on this project (i.e. what is the NPV)?
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