A Project Has a Net Present Value of NPV^€ =

question 23

Multiple Choice

A project has a net present value of NPV^€ = €10,000. In order to invest in the project, the German government requires that you undertake another project with the following cash flow stream: CF₀^€ = -€5000, E[CF₁^€] = €1000, E[CF₂^€] = €1000, and E[CF₃^€] = €1000. The appropriate discount rate for this project is i^€ = 10%. What affect does this tie-in project have on your original NPV^€ estimate?

• A) It increases NPV^€ from €10,000 to €12,513.15.
• B) It increases NPV^€ from €10,000 to €17,486.85.
• C) It decreases NPV^€ from €10,000 to €7,486.85.
• D) It increases NPV^€ from €10,000 to €2,513.15.
• E) It is a separate project and has no effect on NPV.

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Definitions:

Significant Premium

A significant premium refers to a large additional amount paid over the usual cost or value, often used in the context of acquisitions where the buyout price is well above the market price of a company's shares.

SEC Regulations

Rules and guidelines established by the Securities and Exchange Commission (SEC) to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

Private Investors

Individuals or entities that invest their own capital in various financial instruments or businesses, aiming for personal profit.

Private Partnerships

Agreements or collaborations between private entities or individuals for business purposes, often structured to achieve specific goals or projects.