Reference no: EM132962726
A firm is considering a 2-year project with an initial outlay of $12,000. The costs of operating in years 1 and 2 are known with certainty to be $30,000. However, the revenues are uncertain. There is a 50% chance that year 1 revenues will be $42,000 and a 50% chance that year 1 revenues will be $30,000. Second year revenues are also uncertain, but depend to some extent on the state realized in year 1. If the good state is realized in year 1 (i.e., revenue of $42,000), there will be a 50% chance of an upturn to $60,000 in year 2, and a 50% chance of a downturn to $36,000 in year 2. Similarly, if the bad state (i.e., revenue of $30,000) is realized in year 1, there will be a 50% chance of an upturn to $36,000 in year 2, and a 50% chance of a downturn to $12,000 in year 2.
Problem a. Use DCF analysis to find the expected NPV of this project, ignoring the option to abandon, and assuming a 10% cost of capital.
Problem b. What is the project's correct NPV, considering the abandonment option, and what then is the value of the option to abandon?
|
Evaluating the personal requests of employees
: In March 2011, Teresa Wheatly was hired by Adobe as a software accounts manager. With excellent administrative and technical skills, plus 4 years of experience
|
|
Different levels of desirability based on employee
: In a multigenerational organization, employees have preferences for different benefits. Identify a benefit that has different levels of desirability based on an
|
|
Why is the litigation division manager concerned
: Why is the Litigation division manager concerned about an increase in price charged by the Human Resources division
|
|
Journalize the entry for the payroll
: Journalize the entry for the payroll. If required, round your answers to two decimal places. If an amount box does not require an entry, leave it blank.
|
|
Use dcf analysis to find the expected npv of the project
: Use DCF analysis to find the expected NPV of this project, ignoring the option to abandon, and assuming a 10% cost of capital.
|
|
Find the monthly payment
: Find the monthly payment (in $) and the total interest (in $) for a mortgage of $48,000 at 5 1/4 % for 40 years
|
|
Evaluate what estimated cost of common equity using capm
: Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 4%. What is the estimated cost of common equity using the CAPM?
|
|
Calculate gross profit and net profit
: Cost of goods sold for the period after returns was $ 320,000. Operational Expenses are $ 50,000. Calculate gross profit and net profit
|
|
Journalize the transactions for Worner Corporation
: Worner Corporation is authorized to issue 100,000 ordinary shares with a $5 par value. Journalize the transactions for Worner Corporation
|