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Project Schedule Year 1 Year 2 01 03 02 03 04 Q1 02 Years 02 03 04 01 04 01 Year 4 02 03 04

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Project Schedule Year 1 Year 2 01 03 02 03 04 Q1 02 Years 02 03 04 01 04 01 Year 4 02 03 04 Costs Development Cost Pilot Testing Cost Romp-up Cost Marketing and Support Cost Inventory Investment Cost of Goods Sold Production Volume Unit Production Cost Total Cost Sales Sales Revenue Sales Volume Unit Price Net Operating Cash Flow Period Discount Rate PVS Project NPV You are presented with 4 investment options: Option 1: A contract that will pay you $500 at the end of year 1 and year 2.51,000 at the end of year 3. nothing at the end of year 4 and S, and $1,000 at the end of year 6 and year 7. Option 2: A $5,000 face value bond that will pay you an annual coupon of $50 over the next 10 years. Option 3: A stock portfolio that pays a constant dividend of $96 annually for a long time perpetuity) Option 4: A cash prize that pays you an annuity due of $500 for 7 years. Assume your personal cost of capital is 3%/year. 11. What is the present value of Option 1? 12. What is the present value of Option 2? 13. What is the present value of Option 3? 14. What is the present value of Option 42 15. If your personal cost of capital is 3%/year for the first 3 years, then changes to 5%/year, what is the present value of Option 2

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