The initial investment costs are million
Question 1 [16 points]
Consider two assets with the following cash flow streams:
1
(a) (b) |
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The entrepreneur can borrow and save any amount at any date at the one period interest rate r=12% from a bank.
(a) Should the entrepreneur undertake the project?
[4p]
Suppose a private equity firm wants to buy the whole project (at t=0).
Once the private equity firm owns the project it has to finance all
costs (setup cost and operating costs) itself.
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