You are thinking about an investment opportunity. To implement the opportunity, you need to invest $5 million (C0). The investment will produce Q = 30,000 units of products every year. The price of the product P is $40 per unit and the unit cost is $25. Your discount rate is 6 per cent per year. Calculate the NPV if you invest today.

 Following the same setup as in above Question  but the only difference is that the price of the product is random. Suppose the unit price P is either $60 or $30 next year with equal probability, then expected NPV of the project if postponed by one year is: 

Answer rating: 100% (QA)

SOLUTION Initial investment C0 5 million Annual production Q 30000 units Unit selling price P 40 Uni... View the full answer