You are trying to decide whether to make an investment of €3…

You are trying to decide whether to make an investment of €300 million in a new technology to produce sugar. There is a 60% chance that the market for these cookies will produce profits of €90 million annually, a 20% chance the market will produce profits of €75 million, and a 20% chance that there will be no profits. The size of the market will become clear one year from now. Currently, the cost of capital of the project is 11% per year. There is a 20% chance that the cost of capital will drop to 9% in a year and stay at that level forever, and an 80% chance that it will stay at 11% forever. Movements in the cost of capital are unrelated to the size of the cookies market. Requested: Construct the decision tree that shows the choices you have to make the investment either today or one year from now. (25 Marks)

Suppose you have negotiated with WonderDishwasher Ltd to sel…

Suppose you have negotiated with WonderDishwasher Ltd to sell their top-of-the-art 100% Solar Energy Dishwashers. The contract terms specify that you must open the dealership immediately or in exactly one year; if you do neither, you lose the right to open the dealership.  You have the following information available:  1)      It cost €7,5 Million to open the dealership. 2)      If you open the dealership immediately, you expect it to generate €300,000 from the first year with a growth rate of 1% 3)      The cost of capital for this investment is 6% 4)      Assume: a.      The Risk-free interest rate is 5%. b.      The volatility of this business is 40% c.       If you wait to open the dealership, you have an opportunity cost of €300,000 Requested: How much you should pay for this opportunity? Explain in detail all your calculus and assumptions.  Recall: Black-Scholes formula: Where S is the current price for the Stock, PV K() is the present value (price) of a risk-free zero-coupon bond that pays K on the expiration date of the option, N d() is the cumulative normal distribution and: (25 Marks)

You moved to a new house in January 2024 and are worried abo…

You moved to a new house in January 2024 and are worried about your high electricity bills. You asked a Solar Panels installer to make you a proposal for installing a new Solar system. Your electricity bills for 2024 were as follows: Month Electricity Period Feb-24 500 2 Apr-24 350 2 May-24 300 1 Jun-24 350 1 Jul-24 200 2 Sept-24 150 1 Nov-24 350 2       The December bill is still unavailable, and since you have changed electricity suppliers, some of your bills correspond to 1 or 2 months, as indicated in the column period.  The Sollar company’s quote says you will need to pay 12 500€ for your new Sollar Pannels, but it will be fully paid in 5 years, considering that you can decrease your electricity bills to zero.  Taking into account that you have 12 500€ in a bank account receiving an interest rate of 1% APR and that you estimate that the inflation rate for the price of electricity will be 2% for the next 5 years.  Requested:  a)      Should you make this investment? 20 Marks b)      Is the installer lying to you, or did he forget a basic rule in Finance? 5 Marks                                                                                    Total: 25 Marks