Question
Suppose that the forecast period for a project is from year 0 thru year 15. You think there is a 10% chance each year from
Suppose that the forecast period for a project is from year 0 thru year 15. You think there is a 10% chance each year from 15 on will be the last. The real net benefit in year 15 was 225 and grows at 2% per year. The discount rate is 3%.
a) What is the horizon value?
b) Suppose that when the program ends, there will be a clean-up cost of $1000 that must be subtracted to calculate the horizon value. What is the horizon value now?
Suppose that the forecast period for a project is from year 0 thru year 15. You think there is a 10% chance each year from 15 on will be the last. The real net benefit in year 15 was 225 and grows at 2% per year. The discount rate is 3%.
a) What is the horizon value?
b) Suppose that when the program ends, there will be a clean-up cost of $1000 that must be subtracted to calculate the horizon value. What is the horizon value now?
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Introductory Econometrics For Finance
Authors: Chris Brooks
4th Edition
110843682X, 9781108436823
