Question 26 (5 points)

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Your all equity firm will operate for one year and then shut down operations. The firm will have one cash flow that next year that will be $40M if exchange rates rise and $20M if exchange rates fall. The operating cost next year will be $15M and the project requires an upfront cost of $7M. The probability of exchange rates rising is 20 percent. Assume that the discount rate for all cash flows is 12 percent.

Suppose that the project requires a $2M disposal costs that will be incurred next year. Is this now a worthwhile investment?

Question 26 options:

	No, NPV is not positive
	Yes, NPV>0
	Not enough information

Question 27 (4 points)

Your all equity firm will operate for one year and then shut down operations. The firm will have one cash flow that next year that will be $40M if exchange rates rise and $20M if exchange rates fall. The operating cost next year will be $15M and the project requires an upfront cost of $7M. The probability of exchange rates rising is 20 percent. Assume that the discount rate for all cash flows is 12 percent.

Suppose that the federal government announces that it will engage in fiscal stimulus and not change monetary policy.

Would the expansionary fiscal policy be good news to the company's shareholders or bad news?

Question 27 options:

	Good news, as it increases the likelihood that exchange rates will rise
	Bad news, as it increases the likelihood that exchange rates will fall
	Not enough information.