Corporation FinanceBus 35200Case Study: genus Penelope| | 1. What is the NPV of the first gear extension recall cipher, ignoring both the scheme of couching in the jiffy-generation bedevil and the adventure of giveing the equipment after both days? We calculate the NPV by adding the yrly future free gold flows of the project discounted at a rate fair to middling to the live of equity. We use the CAPM grammatical construction to calculate the cost of equity, assuming a chance free rate of 10%, a ? of 1.2 and the market pretend bonus of 8%. We got a cost of equity of 20%. lax bills flows atomic number 18 calculated using the principle EBIT x (1-TAX) + Depreciation Capex throw in NWC. The results are presented downstairs: The NPV of the first generation holler project, ignoring both the supposition of investing in the second-generation project and the possibility of loting the equipment after dickens social classs is ($3,154). Since the NPV is negative, this would not be a good investment. 2. If we omit the survival of the fittest to invest in the second-generation phone, how valuable is the picking to merchandise the equipment in the second year? Hint: First attracter the close tree for the project with the election to sell the equipment in the second year. Then, depending on whether the immediate payment flow increases or decreases, go out the valuate of the excerpt at the end of the second year.
What is the look on of this option today (use trade pricing in a binominal tree)? Would Penelope fatality to invest under this scenario? Ignoring both the possibility of selling the equipment after dickens years and investing in the second-generation project, the NPV of the project will be ($3,154). To value the option to sell the equipment in the second year and to calculate NPV of the project with the option we use a binomial tree valuation. We assume: * the cash flows would either increase by 64.9% or decrease by 39.3% over each period * the run a risk free rate is 10.0% * the bemuse price of the put would be $4,000 The value of the option would be...If you indigence to get a to the full essay, order it on our website: Ordercustompaper.com
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