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What is the present value of project

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The manager is considering a project. The project generates the cash flow $124 at t1. However, the cash flow at t2 decreases to $2. From t2 on, the cash flows increase at a rate of 10% forever. The constant spot rate of return is 12%. (a) What is the present value of this project? [10 points] (b) If the project needs an initial investment $198, will the manager invest in this project? Why? [Hint: There is no budget constraint.] [5 points] (c) At t3 (right after receiving the cash flow at t3), the manager is fired. The company wants to sell the project to an investor, Mr. White. The selling price is $125. Will Mr. White buy this project? Why? [Hint: Mr. White discounts future cash flows using the same spot rate of return.

Reference no: EM132679311

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