Question
New information has come available in which a competitor may enter the market. You believe that there is a 40% chance the competitor will enter
New information has come available in which a competitor may enter the market. You believe that there is a 40% chance the competitor will enter the market. If the competitor enters the market your cost will be -200,000, and your expected cash flows will be $30,000 in each of the next six years. If the competitor does not enter the market your cost will be the same, but your expected cash flows will be $50,000. If you invest now you do not know if the competitor will or will not be in the market. The interest rate is 0.27. Evaluate the NPV given the possibility of a competitor.
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