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You are considering a project that you expect will produce $200 FCFF every year in...

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Finance

You are considering a project that you expect will produce $200 FCFF every year in perpetuity. Depending on whether the project is successful or not, however, the demand one year from today will be either low, producing $100 FCFF in perpetuity, or high, producing $300 FCFF in perpetuity. The high and low demand outcomes are equally likely and will be revealed in one year. The revealed outcome is expected to persist forever. The project cost is $1,000. The discount rate for the first year is 30% and 15% for subsequent years. The project can be dismantled and sold at the end of the first year for $700 after taxes. Should you take the project?

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