Determine what is the most laura should pay for the asset

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Question - Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $2,500 for each of the next 4 years and $11,249 ?in 5 years. Her research indicates that she must earn ?4% on? low-risk assets, ?9% on? average-risk assets, and ?14% on? high-risk assets.

a. Determine what is the most Laura should pay for the asset if it is classified as? (1) low-risk,? (2) average-risk, and? (3) high-risk.

b. Suppose Laura is unable to assess the risk of the asset and wants to be certain? she's making a good deal. On the basis of your findings in part a, what is the most she should? pay? Why?

c. All else being the? same, what effect does increasing risk have on the value of an? asset? Explain in light of your findings in part a.

Reference no: EM133173736

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