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Reflects the degree of uncertainty

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If you are offered an investment that costs $5,000 today and promises to pay you $7,000 two years from today, and if your opportunity cost for projects of similar risk is 10%, would you make this investment? You need to compare your $5,000 investment with the $7,000 cash flow you expect in two years. Since you feel that a discount rate of 10% reflects the degree of uncertainty associated with the $7,000 expected in two years, today it is worth: (Hint: NPV).

Reference no: EM132613692

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