XYZ plans an initial investment of $1000 this year, a project will generate cash flows of $2400 or $900 next year, which depends on whether the economy is strong or weak, respectively. 

Suppose investors ask for a risk premium, above the current risk-free interest rate of 7% to invest in the Imagine that given the market risk of the investment, such a premium is 11%. Given a risk-free interest rate of 7% and a risk premium of 11%, the own capital cost of this project is 18%. 

What is the NPV of this investment?

Answer rating: 100% (QA)

To calculate the NPV of the investment we need to discount the expected cash flows by the p... View the full answer