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AINOS Company runs a perpetual encabulator machine, generating revenues averaging $40 million per year. Raw material costs are 65% of revenues, so they are variable costs. There are no other operating costs. AINOS Company's cost of capital is 20%, and its long-term borrowing rate is 16%. Fidelity Financial proposes a fixed-price contract to supply raw materials at $26 million per year for 10 years

Continued from the above Question, calculate the present value of the encabulator machine with the fixed-price contract. Suppose that AINOS Company is going to finance the annual cost of fixed-price contract, $26 million per year, by the long-term borrowing

Question 15 options:

	$72.83 million
	$70.00 million
	$53.34 million
	$83.53 million

Which of the following statement is true?

Question 10 options:

	Risky projects can be evaluated by discounting certainty equivalent cash flows at the risk-adjusted discount rate.
	A manager who adjusts discount rates by using a "fudge factor" is more likely to penalize short-term projects as opposed to long-term projects.
	Risky projects can be evaluated by discounting expected cash flows at a risk-free interest rate.
	In the certainty equivalent approach, certainty equivalent cash flows are discounted at the risk-free interest rate to calculate the NPV of a project.

What is the abandonment option value if Varroc Lighting Systems uses Black-Scholes formula?

In order to be able to calculate the abandonment option for the project, Fuse Lighting has calculated the following values needed:

The current project value is $536.02 million.

The project volatility is 39.60%.

The maturity of this abandonment option is 1 year.

The risk-free rate is 5%.

(Note: The exercise price is the price that the company can get for selling the plant when it decides to abandon the project.)

Question 5 options:

	$21.07 million
	$30.18 million
	$18.39 million
	$24.65 million

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