The price of a unit to be manufactured can follow one of, Ask an Expert

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The price of a unit to be manufactured can follow one of three potential paths with equal probability:

Path Period 0 Period 1 Period 2

Path A $35.00 $40.00 $45.00

Path B $35.00 $40.00 $40.00

Path C $35.00 $35.00 $35.00

Path D $35.00 $30.00 $25.00

a. What is the NPV of a project that will allow the firm to manufacture 200 units each year for Periods 1 and 2, assuming a cost of $12,800.00 and a discount rate of 10%?

b. Assuming that half the cost ($6,400.00) can be spent now and the rent after Period 1, what is the NPV now?

c. Suppose that after Period 1 the price is $35.00 or $30.00, then what is the NPV of investing the second half of the 12,800.00?

d. Suppose that after Period 1 the price is $40.00, then what is the NPV of investing the second half of the $12,800.00? Is the 10% discount rate appropriate here?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92800072

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