FRE Firm has a capital investment that requires an expenditure of $522.2 m and promises to...

FRE Firm has a capital investment that requires an expenditure of $522.2 m and promises to return $52 m per year in perpetuity. In one year there are two possible outcomes a $56 m or $40 m per year in perpetuity. The risk free rate is 4% and the risky rate is 10%. A) What is the percentage increase in the upside state of the investment? B) What is the risk neutral probability of the up movement of the investment in the above problem? C) What is the value of the project today if the firm waits one year to invest and the expenditure does not change? D) What is the value of waiting for this capital investment?

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jeff jeffy answered 10 months ago

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