You can invest I=95rn in a copper project. The present value of the cash ows from The

You can invest I=95rn in a copper project. The present value of the cash flows from The project is currently 100m and moves linearly with the copper price. In each year the copper price can move up by 25% or down by 20%. There is an equal historical probability p=0.5 that the price of copper goes up. The risk-adjusted rate of return on the project is 25%. The risk free one-year interest rate is 5%. 

a) What is the value of the project if you invest now? 

b) What is the value of the project if you can wait before investing for up to two years?

Answer rating: 100% (QA)

To calculate the value of the project we need to consider the potential cash flows and discount them at the appropriate rate Lets go through the calcu... View the full answer