Consider a bright but penniless entrepreneur living in a 5 period perfect capital market under certainty. The market rate of interest is 10% or r=0.1 S/he has a project that requires an investment of 250TL at t=1 with the following payoff profile in the future

t=2t=3t=4t=5

110121133,1146,41

a) What is the market value of this project?

b) Is this a worthwile project? (Hint: when 250 TL is invested in this market at the going 10% interest it generates the following payments:

t=2t=3t=4t=5

252525275250

c) If the entrepreneur wants to finance this project how much will s/he

d) If the entrepreneur wants to finance this project by issuing 100 shares, what will be the price of 1 share?

d) If the entrepreneur wants to finance this project by issuing 100 shares, how many shares will s/he sell and how many will s/he keep?

e) What is the value of this project for our entrepreneur? Hint: V(1)= N(1)*s(1)