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Suppose a 25mm new venture has a 50% chance of success or failure. Success is 10mm per year perpetual earnings and failure is 8mm per year perpetual losses. The discount rate is 10%. What is the NPV for each scenario? What is the simple expected NPV? Assuming the venture is abandoned after one year if it fails, what is the initial expected NPV with this plan? Is it rational to make this investment?

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Financial Management, Finance

Category:- Financial Management
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