You are considering purchasing a robot to increase the capacity of your plant, therefore, increasing sales. The expected cash flows in a 3-year horizon are $50,000 in the first year, $60,000 in year 2 and $63,000 in year 3. If your interest rate is 10% in the first two years and 12% in year 3, what would be your maximum offer on this robot?

You are considering purchasing a robot to increase the capacity of your plant, therefore, increasing sales. The expected cash flows in a 3-year horizon are $50,000 in the first year, $60,000 in year 2 and $63,000 in year 3. If your interest rate is 10% in the first two years and 12% in year 3, what would be your maximum offer on this robot?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4MC

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