What is the npv of waiting and investing? tomorrow

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You can invest in a? risk-free technology that requires an upfront payment of $1.02 million and will provide a perpetual annual cash flow of $100,000. Suppose all interest rates will be either 9.8% or 5.4% in one year and remain there forever. The? risk-neutral probability that interest rates will drop to 5.4% is 92%. The? one-year risk-free interest rate is 7.7%?, and? today's rate on a? risk-free perpetual bond is 5.2%. The rate on an equivalent perpetual bond that is repayable at any time? (the callable annuity? rate) is 8.8%.

Question a. What is the NPV of investing? today?

Question b. What is the NPV of waiting and investing? tomorrow?

Question c. Verify that the hurdle rate rule of thumb gives the correct time to invest in this case.

Reference no: EM132869090

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