What is the maximum bid it should make

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Reference no: EM131166050

Lost Dutchman Mines, Inc., is considering investing in Peru. It makes a bid to the government to participate in the development of a mine, the profits of which will be realized at the end of five years. The mine is expected to produce $5 million in cash to Lost Dutchman Mines at that time. Other than the bid at the outset, no other cash flows will occur, as the government will reimburse the company for all costs. If Lost Dutchman requires a nominal annual return of 20 percent (ignoring any tax consequences), what is the maximum bid it should make for the participation right if interest is compounded (a) annually?

Reference no: EM131166050

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