Question: When solving the NPV for the BUY decision, there are two different sets of cash flows. The first set of cash flows states CF0=-$1M, CF1-10=-$406,345,
When solving the NPV for the BUY decision, there are two different sets of cash flows. The first set of cash flows states CF0=-$1M, CF1-10=-$406,345, and CF10=$3,287,086. Then right next to those CF values, there is a PV column with different CF values that read: CF0=-$1M, CF1-10=-$1,256,232, and CF10=$238,439.
My Questions are:
1. Why does CF0 not change from the first CF to the PV CFs, while the other CF values do change?
2. How does the CF1-10 value and the CF10 value relate? Shouldn't the CF10 value take into account ADS+expenses?
3. Since the CF10 value is the equity reversion, why doesn't it also include the ADS+expenses? If so, How?
Step by Step Solution
3.53 Rating (160 Votes )
There are 3 Steps involved in it
1 CF0 does not change from the first CF to the PV CFs because CF0 is the i... View full answer
Get step-by-step solutions from verified subject matter experts
