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You have negotiated a deal with the manufacturer to open an electric car dealership in your hometown. The terms of the contract are such that
You have negotiated a deal with the manufacturer to open an electric car
dealership in your hometown. The terms of the contract are such that you must
open the dealership immediately or in exactly one year. If you don't do either of
these things, you lose the right to open the dealership. The cost is $ million
either now or one year from now. If you open immediately, you expect to
generate $ in free cash flow in the first year and the cash flows are
expected to grow at percent each year in perpetuity. The cost of capital for this
investment is If you wait, you will miss out on the first cash flow. If the
predicted volatility of returns to the dealership is and the riskfree rate is
should you invest now or wait? Use the BlackScholes calculator to solve
this problem.
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