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A firm is trying to decide whether to invest on not on a project related to the production of a very special machine. The factory
A firm is trying to decide whether to invest on not on a project related to the production of a very special machine. The factory to produce it will cost 1600mil and will produce one such machine per year forever with zero operating cost. Currently the price of such machine is 200mil but next year the price will change. With probability 50% it will rise to 300mil and with probability 50% it will fall to 100mil. The price then will remain at the same level forever. If the appropriate discount rate for this project is 10% is this a good investment? Support your answer with spreadsheet calculations and discuss your findings.
A firm is trying to decide whether to invest on not on a project related to the production of a very special machine. The factory to produce it will cost 1600mil and will produce one such machine per year forever with zero operating cost. Currently the price of such machine is 200mil but next year the price will change. With probability 50% it will rise to 300mil and with probability 50% it will fall to 100mil. The price then will remain at the same level forever. If the appropriate discount rate for this project is 10% is this a good investment?
Support your answer with spreadsheet calculations and discuss your findings.
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Financial and Managerial Accounting
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
12th edition
978-1133952428, 1285078578, 1133952429, 978-1285078571
