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The James Corporation is considering investing 10 million dollars in developing a new technology. The beta for developing the new technology is 1.6. The market
The James Corporation is considering investing 10 million dollars in developing a new technology.
The beta for developing the new technology is 1.6. The market risk premium is 10%, the nominal
risk-free interest rate is 4% and the expected inflation is 6%. The technology is &xpected to
produce $4 million for 15 years. These are the real (inflation-adjusted) cash flows. Unfortunately,
there is still a 20% chance that the development of new technology is unsuccessful which means
zero cash flows will be generated. What is the NPV (in millions of dollars) of this investment plan?
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Performance Measurement In Finance
Authors: John Knight, Stephen Satchell, Nathalie Farah
1st Edition
0750650265, 978-0750650267
