Question
Fireworks Amusement Ltd is planning to open an amusement park that would cost Rs 100 crores. It is expected to generate Rs 15.60 crores as
Fireworks Amusement Ltd is planning to open an amusement park that would cost Rs 100 crores. It is expected to generate Rs 15.60 crores as free cash flows for the next 20 years The cost of capital of the firm is 13% The local government is planning to provide a free transport facility to the amusement park by the end of next year. The probability of it happening is 60%. In such a case the annual cash flows to the amusement park would jump to Rs 18 crores. If such facility is not provided the annual cash flows would decline to Rs 12 crores. Examine whether the firm must go ahead with the project right now or should it defer the implementation by one year Assume that the cost of the project remains the same at Rs 100 crores even if it is deferred.
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