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The dcf npv for a proposed project is negative at

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54. The DCF-NPV for a proposed project is negative at –\$50,000. However, this project has a 50% chance of leading to an expansion opportunity that you believe will generate after-tax cash flows with a present value of \$200,000. In today’s dollars, the costs of this future expansion opportunity would be \$60,000. Does the growth option make investment now a positive NPV? a. Yes. Do the proposed project because the option generates \$40,000. b. Yes. The NPV of the proposed project is \$40,000. c. No. You would expect to lose \$10,000. d. No. You would expect to lose \$50,000. [ ANSWER: Our formula is: NPV = DCF-NPV + Value of option – Cost of option = –\$50,000 + [(0.5)\$200,000] – \$60,000 = –\$10,000 . So you will not take the proposed project. Although the future investment option is attractive and generates \$40,000, this amount cannot overcome the negative DCF-NPV of –\$50,000.] b 55. The DCF-NPV for a proposed project is positive at \$50,000. However, this project has a 50% chance of leading to an expansion opportunity that you believe will generate after-tax cash flows with a present value of \$200,000. The costs of this future expansion opportunity would be \$60,000. What is the “real” NPV for this project? [ [(0.5)\$200,000] – \$60,000 = \$90,000 .] d 56. The before-tax cash flows from your business are \$300,000 per year, and your tax rate is 25% on this amount. Your required return is 12%. A developer offers to buy your land

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