Question: A project costing 100 will produce perpetual net cash flows
A project costing $100 will produce perpetual net cash flows that have an annual volatility of 35% with no expected growth. If the project existed, net cash flows today would be $8. The project beta is 0.5, the effective annual risk-free rate is 5%, and the effective annual risk premium on the market is 8%. What is the static NPV of the project? What would you pay to acquire the rights to this project if investment rights lasted only 3 years? What would you pay to acquire perpetual investment rights?
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