B. Ltd. is considering an R&D project with initial outlay of 20 lac at...
50.1K
Verified Solution
Link Copied!
Question
Finance
B. Ltd. is considering an R&D project with initial outlay of 20 lac at present and a further outlay of 15 lac at the end of first year. The project will generate cash inflow only after two years from now & will depend upon the state of economy: Good (G) & Bad (B). The probability of Good state in 1st year is 75%. The probability of Good state in 2nd year, as well, is 80%. There is only 30% probability of a Good state succeeding a Bad state. The cash inflows at the end of 2nd year will be: CFGG = +200 lac CFBG = +20 lac CFGB = +120 lac CFBB = 100 lac The company has the option of abandoning the project at the end of first year. The scrap value of 9 lac will be realized and no further investment will be required. Evaluate the value of this option if cost of capital is 10 percent. What will be the NPV of this project, if the supplier is charging 1 lac extra for this abandonment facility? How much extra should the company be willing to pay for this facility of abandonment?
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
- Unlimited Question Access with detailed Answers
- Zin AI - 3 Million Words
- 10 Dall-E 3 Images
- 20 Plot Generations
- Conversation with Dialogue Memory
- No Ads, Ever!
- Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Other questions asked by students
StudyZin's Question Purchase
1 Answer
$0.99
(Save $1 )
One time Pay
- No Ads
- Answer to 1 Question
- Get free Zin AI - 50 Thousand Words per Month
Unlimited
$4.99*
(Save $5 )
Billed Monthly
- No Ads
- Answers to Unlimited Questions
- Get free Zin AI - 3 Million Words per Month
*First month only
Free
$0
- Get this answer for free!
- Sign up now to unlock the answer instantly
You can see the logs in the Dashboard.