Homework Answers
Solution :-
Value of the Project = Present Value of Incremental cash Inflows - Upfront Cost
Where Present Value of Incremental cash Inflows forever = Cash inflows in Year 1 / ( Discount rate - Growth rate )
= $50 millions / ( 0.11 - 0.04 )
= $50 millions / 0.07
= $714.3 millions
Upfront Cost = $300 millions
Value of the Project = $714.3 millions - $300 millions = $414.3 millions
Therefore the correct answer is ( D )
If there is any doubt please ask in comments
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