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Your firm can invest excess profits into a stock portfolio. The details of the investment are as follows: Initial Investment: The cost to purchase
Your firm can invest excess profits into a stock portfolio. The details of the investment are as follows: Initial Investment: The cost to purchase the stock portfolio today (year 0) is $65,000. Additional Purchase: To rebalance the portfolio, your firm plans to invest an additional $10,000 in the portfolio in year 3 (at the end of the third year). Dividends: The portfolio is expected to pay an annual dividend of $5,000 each year for years 1-3. The additional purchase at the end of the third year increases dividends by $300. Sale of Portfolio: It is anticipated that the portfolio could be sold for $75,000 at the end of the fifth year. Required Rate of Return: Your firm has established a required rate of return of 10% for its investments. What is the NPV of this project? Should you accept or reject this project? O-$6,598; Reject O $6,842; Accept O $6,598; Accept O-$7,241; Reject
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