You are considering to join a fast-food chain shops either now or in two years....
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You are considering to join a fast-food chain shops either now or in two years. The cost to open a shop is $4 million according to the contract. If you open the shop immediately, you expect it to generate $1 million in free cash flow the first year, and these cash flows are expected to grow at a rate of 2.0% per year, based on your prediction of the product market. Given the cost of capital is 13%, risk-free rate is 3%, and appropriate business volatility is 30%, the value of the project is closest to:
a.
$3.1 million
b.
$3.7 million
c.
$2.8 million
d.
$3.4 million
e.
$2.5 million
f.
$2.2 million
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