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Answers and Solutions:
13  6
e.
NPV @
0
1
Yr. 0
50% Prob
.


Taxes
NPV = ?
1,500,000
$
0.00
+300,000 = NPV @ t = 1
No Taxes


50% Prob.
NPV = ?
1,500,000
2,232,142.86
+4,000,000 = NPV @ t = 1
Expected NPV $1,116,071.43
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Unformatted text preview: If the firm pays $1,116,071.43 for the option to purchase the land, then the NPV of the project is exactly equal to zero. So the firm would not pay any more than this for the option. r = 12% } wouldn’t do...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
 Spring '08
 Staff

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