Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 22, Problem 12P
Summary Introduction
To determine: The decision and if the profit will last forever.
Introduction:
Decision tree is a tree-like graph which helps to identify strategies that are most likely to achieve a goal. The decision tree is a decision-supporting tool.
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You have been offered a unique investment opportunity. If you invest $9,500 today, you will receive $475 one year from now, $1,425 two years from now, and $9,500 ten
years from now.
a. What is the NPV of the opportunity if the cost of capital is 5.2% per year? Should you take the opportunity?
b. What is the NPV of the opportunity if the cost of capital is 1.2% per year? Should you take it now?
C
a. What is the NPV of the opportunity if the cost of capital is 5.2% per year?
If the cost of capital is 5.2% per year, the NPV is $. (Round to the nearest cent.)
Should you take the opportunity? (Select from the drop-down menu.)
You
take this opportunity.
b. What is the NPV of the opportunity if the cost of capital is 1.2% per year?
If the cost of capital is 1.2% per year, the NPV is $
Should you take it now? (Select from the drop-down menu.)
You
take this opportunity at the new cost of capital.
(Round to the nearest cent.)
You have been offered a unique investment opportunity. If you invest $8,900 today, you will receive $445 one year from now, $1,335 two years from now, and $8,900 ten years from now. a. What is the NPV of the opportunity if the cost of capital is 6.7% per year? Should you take the opportunity? b. What is the NPV of the opportunity if the cost of capital is 2.7% per year? Should you take it now?
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from now, $1,320 two years from now, and $8,800 ten years from now.
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b. What is the NPV of the opportunity if the cost of capital is 2.6% per year? Should you take it now?
a. What is the NPV of the opportunity if the cost of capital is 6.6% per year?
If the cost of capital is 6.6% per year, the NPV is $
(Round to the nearest cent.)
Chapter 22 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 22.1 - What is the difference between a real option and a...Ch. 22.1 - Why does a real option add value to an investment...Ch. 22.2 - Prob. 1CCCh. 22.2 - In what circumstances does the real option add...Ch. 22.2 - How do you use a decision tree to make the best...Ch. 22.3 - What is the economic trade-off between investing...Ch. 22.3 - Prob. 2CCCh. 22.3 - Does an option to invest have the same beta as the...Ch. 22.4 - Why can a firm with no ongoing projects, and...Ch. 22.4 - Why is it sometimes optimal to invest in stages?
Ch. 22.4 - How can an abandonment option add value to a...Ch. 22.5 - Prob. 1CCCh. 22.5 - Prob. 2CCCh. 22.6 - Why can staging investment decisions add value?Ch. 22.6 - How can you decide the order of investment in a...Ch. 22.7 - Prob. 1CCCh. 22.7 - Prob. 2CCCh. 22 - Your company is planning on opening an office in...Ch. 22 - You are trying to decide whether to make an...Ch. 22 - Prob. 4PCh. 22 - Prob. 5PCh. 22 - You are a financial analyst at Global Conglomerate...Ch. 22 - Prob. 7PCh. 22 - Prob. 8PCh. 22 - Consider again the electric car dealership in...Ch. 22 - Prob. 12PCh. 22 - Prob. 13PCh. 22 - You are an analyst working for Goldman Sachs, and...Ch. 22 - You own a small networking startup. You have just...Ch. 22 - An original silver dollar from the late eighteenth...Ch. 22 - What implicit assumption is made when managers use...Ch. 22 - Prob. 22PCh. 22 - Genenco is developing a new drug that will slow...Ch. 22 - Prob. 24PCh. 22 - Your firm is thinking of expanding. If you invest...Ch. 22 - Prob. 26PCh. 22 - Assume that the project in Example 22.5 pays an...
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