1. Suppose an opportunity arises to invest $10 million that will pay $5.5 million at the end of year 1 and $6.5 million at the end of year two. The cost of capital is 10%
2. Find NPV. Is the project a go? Show and explain
3. Suppose the projects cash flows are delayed a year, but not the outlay. How does that change your answer? Show and explain
4. Suppose there is a cost overrun of 20%. The cash flows and their timing are the same as in part a. How does this change your answer? Show and explain.
5. Suppose the second-year cash flow decreases to $5 million. The outlay and timing of the cash flows are the same as in part a. How does this change your answer? Show and explain.
6. Evaluate the proposal. Would you undertake it?