If the cost of capital is 30 and the risk-free rate is 5, Finance Basics

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If the cost of capital is 30 and the risk-free rate is 5

Question: Consider the cash flows below:

2017_Project CF.png

a. If the cost of capital is 30% and the risk-free rate is 5%, find the state prices which match the project ' s NPV.

b. If there exists an abandonment option so that we can change all negative cash flows to zero, value the project.

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Finance Basics: If the cost of capital is 30 and the risk-free rate is 5

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Finance Basics: If the cost of capital is 30 and the risk-free rate is 5

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