Question: Please look at the attached screenshot for the question Use these data for the following 3 questions Your firm is considering launching its new project
Please look at the attached screenshot for the question
Use these data for the following 3 questions Your firm is considering launching its new project on a vaccine for a virus. You estimate that the project will provide the following annual free cash flows (FCFS): Year 1 Year 2 Year 3 FCF $200M $100M $100M The project would require an initial up-front investment of $150M. In addition, you estimate that the appropriate cost of capital for the project of this risk class is 25.0% per annum. Question A. Given the above expected cash flows, what is the NPV of the project? Would you accept the project? Select one: 0-$20M; Reject 0-$28.88M; Reject O+$93.66M; Accept O+$350M; Accept O+$125.2M; Accept Question B. Due to the government regulation on commercial vaccine development, you now estimate that there is a 35% chance in any given year that your project assets will be expropriated without compensation. The cost of capital of 25% p.a. does not factor in any such risk of expropriation. What is the NPV of your project now? Would you accept the project? Select one: O+$110M; Accept O+$28.88M; Accept O+$49.71M; Accept O-$4.90M; Reject 0-$28.88M; Reject Question C. Your Federation Insurance Bureau contact informs you that your firm can be provided with political risk insurance. This would compensate $50M at the end of the year in which your assets were seized. The insurance contract requires payment of its $3M annual fee at the start of each year of coverage. What is the NPV of your project with insurance now? Would you insure the project? Select one: O+$6.80M; Do not insure the project O+$6.80M; Insure the project O+$14.31M; Insure the project O+$12.85M; Insure the project O+$12.85M; Do not insure the project
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