Question
A new startup firm has a dilemma on the project it needs to undertake. Thus, you were hired as a consultant to help decide which
A new startup firm has a dilemma on the project it needs to undertake. Thus, you were hired as a consultant to help decide which of three options to take to maximize the firm's value over the next three years.
The following table shows annual profits for each option. Interest rates are expected to be constant at 8% over the next three years.
Option Profits in Year 1 Profits in Year 2 Profits in Year 3
A $80,000 $90,000 $100,000
B $60,000 $100,000 $110,000
C $40,000 $110,000 $125,000
A. Discuss the difference in the profits associated with each option. Provide an example of real-world options that might generate such profit streams.
B. Which option has the greatest present value?
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