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(a) Company A in country X is considering the investment in a project with the following (estimated) cost and benefit. The project has a life

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(a) Company A in country X is considering the investment in a project with the following (estimated) cost and benefit. The project has a life of 3 years and has zero value after the third year. (i) Suppose in year 0 Company A could borrow or lend at an annual interest rate of 4%. Explain clearly with calculation whether Company A will invest in this project. (ii) Based on your answer in part (a) explain how an increase in interest rate to 5% will affect Company A's investment decision. (b) Suppose Peter puts an amount of P=P1+P2 into the bank as time deposit. The interest rate to the deposit is r% per year. After one year, Peter will take out P1(1+r%) out of the bank. After another year, Peter will take out the remaining amount from the bank. When the interest rate used for calculating the present value is also r%, show that the net present value for putting money into the bank is zero

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