Suppose you want to open a restaurant. The initial cost will be $3,500,000 and you require a return of 20%. You expect cash flows to be $625,000 in perpetuity. Q1: What is the NPV? The expectation of $625,000 came from the following. You project cash flows to be either $800,000 or $450,000 in perpetuity. Both outcomes have a 50% probability of occurring. Q2: Compute the NPV of the optimistic and pessimistic forecast. Q3: Based on what we know, should you accept or reject the project?

Suppose you want to open a restaurant. The initial cost will be $3,500,000 and you require a return of 20%. You expect cash flows to be $625,000 in perpetuity. Q1: What is the NPV? The expectation of $625,000 came from the following. You project cash flows to be either $800,000 or $450,000 in perpetuity. Both outcomes have a 50% probability of occurring. Q2: Compute the NPV of the optimistic and pessimistic forecast. Q3: Based on what we know, should you accept or reject the project?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 13P

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