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Question: a) You can acquire an existing business for $2 million. You are uncertain about future demand. There is a 40 percent chance of high demand, in which case the present value of the business will be $3 million. There is a 25 percent chance of moderate demand, and the associated present value is $1.5 million. Finally, there is a 35 percent chance of low demand, in which case the present value is $1 million. What is the expected net present value of the business? Should you invest? Explain.
b) Suppose that if you buy the business described in Part B, you can expand the business by investing another $500,000 after you learn the true future demand state. This would make the present value of the business $4 million in the high-demand state, $2.5 million in the moderate demand state, and $1.0 million in the low demand state. What is the net present value of the business if you consider the option to expand? How valuable is the option to expand?
If prices and wages always change by exactly the same percentage and are expected always to do so, how is the short- run aggregate supply curve shaped?
By 1990, that figure had risen to $123,000. What was the average annual rate of change in the price of houses over this time period? Select one: a. 5.95% per year b. 3.42% per year c. 10.12% per year d. 12.36% per year.
What is a PN junction? Draw its circuit symbol. What is the convention followed in writing its symbol? Illustrate its characteristic and make it self explanatory.
How much money should be invested in the risky asset to form a portfolio with an expected return of 11%?
In the counteroffer, Englesen asked Kepple to remove from their contract a clause requiring written confirmation of the availability of a "free split"
fuji software inc. has the following mutually exclusive projects.a.nbspsuppose fujis payback period cutoff is two
prada has nine million shares outstanding generates free cash flows of 40 million each year and has a cost of capital
Calculating WACC. Crosby Industries has a debt-equity ratio of 1.5. Its WACC is 9.1 percent, and its cost of debt is 5.5 percent. There is no corporate tax.
Jaguar Auto Company provides general car maintenance to customers. The company's fiscal year-end is December 31. The December 31, 2012, trial balance.
Identifying What were the results of government efforts to reduce deficits?
If the market price of a 20-year pure discount bond with a face value of $1,000 is $214.55, what is the spot interest rate for the 20-year maturity expressed in percentage per annum?
Which of the following is an acceptable method of accounting for employee stock options and Which is the date when a firm gives a stock option to employees?
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