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History Bookmarks Window Help courses,aplia.com Aa Aa 4. Investment timing option Decision tree and the Black-Scholes valuation suppose a technical glitch in the trading systems in the stock markets led to several erroneous trades." Soon after, Lesnor Co., a professional training company, came up with the idea of developing a new division that would teach securities traders to communicate by using an old style of hand language on the trading floor, which would help revive that dying language. A young product development employee, Ryan, proposed this idea and also submitted the following details about the project: The division would need an initial investment of $4.0 million. Ryan expects that this division will bring in an additional $3.5 million at the end of each of the next five years. The project's cost of capital is 11%, and the risk-free rate is 4%. The WACC is used to discount all cash flows Based on the given information, what is the project's expected net present value (NPW)? Q $8.94 million $9.83 million Q $13.41 million Q $7.15 million After further research, Ryan added a few more details about the project to the proposal. Ryan submitted the proposal, he again included the probability of project's When services tax would be imposed on the revenues the success based on whether a financial from the project for stock broker training. Based on discussions with lawyers, there is a 60% chance that the tax would not be imposed, in which case the project would generate a cash flow of ss.3 If a services tax is imposed, the project would a flow so Lesnor Co. now has the option of knowing about the tax situation before it commits to the Lesnors management decides to wait for a yoar before they make a decision on launching the project. However, Ryan mentions that the cash flow estimations for the project will remain valid only for the next five years. (For valuation purposes, the project has the same end date even with the option of waiting.)In the meantime, the managers decide to invest $4.0 million in securities for one year, which is expected to generate a rate of return equal
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