Micron inc can invest 5000000 in a new technology, Ask an Expert

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Micron Inc. can invest $5,000,000 in a new technology. Micron’s CFO is concerned about uncertainty of the future interest rates. She believes that future interest rates may be either 12% or 7% into foreseeable future. The risk-neutral probability that interest rates will be at 7% is 60%. The one-year risk-free interest rate is 5%; the rate on a risk-free 20-year bond is 10% and the rate on an equivalent 20-year callable bond is 8.5%.

New project will provide Micron an annual cash flows of $570,000 per year for the next 20 years. Should Micron accept this project? Why or why not?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92772352

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