A company is considering investing in a project. The present value (PV at time=1) of future...

 

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A company is considering investing in a project. The present value (PV at time=1) of future discounted expected cash flows is either 10,000 if the market goes up or 2,000 if the market goes down next year. The objective probability the market will go up is 60%. The appropriate risk- adjusted rate of return (cost of capital) is 10%. The initial capital investment required at time 0 is 8,000. Compute the PV of the project. A company is considering investing in a project. The present value (PV at time=1) of future discounted expected cash flows is either 10,000 if the market goes up or 2,000 if the market goes down next year. The objective probability the market will go up is 60%. The appropriate risk- adjusted rate of return (cost of capital) is 10%. The initial capital investment required at time 0 is 8,000. Compute the PV of the project.

Answer rating: 100% (QA)

Probability of market going up 60 Prob of market going down 100 60 40 Cash flow if m... View the full answer