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Unformatted text preview: amount in one year?
b. Having $200 in one year is equivalent to having what amount today?
c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?
The NPV Decision Rule
10. Your storage firm has been offered $100,000 in one year to store some goods for one
year. Assume your costs are $95,000, payable immediately, and the interest rate is
8%. Should you take the contract?
11. You run a construction firm. You have just won a contract to build a government
office building. Building it will require an investment of $10 million today and $5
million in one year. The government will pay you $20 million in one year upon the
building’s completion. Suppose the interest rate is 10%. 03_ch03_berk.indd
03_ch03_berk.indd 86 12/15/11 8:08 PM Chapter 3 The Valuation Principle: The Foundation of Financial Decision Making 87 a. What is the NPV of this opportunity?
b. How can your firm turn this NPV into cash today?
12. Your firm has id...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.
- Spring '07