(c) At t3 (right after receiving the cash ow at t3), the manager is red. The company wants to sell the project to an investor, Mr. White. The selling price is $125. Will Mr. White buy this project? Why? [Hintz Mr. White discounts future cash ows using the same spot rate of return] [10 points] Solution: N PV = 00 + PV X 1 2 N 131/ = 00 + M 7" _ 9' [7 points] _ $2 x (1.1)2 NPV $125 + 012 _ 0.10 N PV 2 $4 [2 points] The NPV is negative, so he will not invest. [1 points] 1. The manager is considering a project. The project generates the cash ow $124 at t1. How- ever, the cash ow at 732 decreases to $2. From t2 on, the cash ows increase at a rate of 10% forever. The constant spot rate of return is 12%. (a) What is the present value of this project? [10 points] Solution