You are offered an investment with the following conditions: ? The cost of the investment is 1,000.
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You are offered an investment with the following conditions:
? The cost of the investment is 1,000.
? The investment pays out a sum X at the end of the first year; this payout grows at the rate of 10% per year for 11 years.
If your discount rate is 15%, calculate the smallest X which would entice you to purchase the asset. For example, as you can see in the following display, X = $100 is too small?the NPV is negative:
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