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Business, 04.01.2020 06:31 mirandac9394

Afirm is considering a simple investment project. if it goes forward, then the firm must pay $900 now, but it receives a payment of $400 in each of the following three years. (a). you should calculate, to the nearest dollar, the present value of this project for four different scenarios. assume that the firm's opportunity cost of capital is simply the (risk-adjusted) market interest rate. scenario a: the occ (opportunity cost of capital) is 14%. scenario b: the occ (opportunity cost of capital) is 17%. for the second two scenarios, assume that the occ is 20%, but there is also inflation. the effect of inflation is to increase the value of the payment received by the inflation rate, with each year that passes. this implies that the first year payment will exceed $400, and each year's payment will be larger than the previous year's payment. scenario c: the inflation rate is 2%. scenario d: the inflation rate is 5%. b. in which scenarios is the project profitable? (you should briefly justify your answers.) c. can you find two scenarios such that the scenario with the higher interest rate also produces less investment? can you find two scenarios such that the scenario with the higher interest rate also produces more investment? d. can you find two scenarios such that the scenario with the higher inflation rate also produces less investment? can you find two (different scenarios such that the scenario with the higher inflation rate also produces more investment? e. calculate the real interest rate for each scenario.

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