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Suppose a medium-sized pharmaceutical firm, ABC Medics, receives an order to produce one million doses of vaccine. This vaccine project has an initial cost of
Suppose a medium-sized pharmaceutical firm, ABC Medics, receives an order to produce one million doses of vaccine. This vaccine project has an initial cost of $ 20 million today. After one year, upon completion, the vaccine doses will be delivered to the ministry of health for $25 million. Rather than paying for the $20 million investment entirely using its own cash, ABC Medics is considering raising additional funds by issuing a security that will pay investors $11 million in one year. Suppose the risk-free rate of interest is 10%. Without issuing the new security, the NPV for this project is closest to what amount? Should ABC Medics make the investment? A) $1.7 billion; Yes B) $1.7 million; No C) $2.7 billion; Yes D) $2.7 million; No E) $2.7 million; Yes
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