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Use a Binomial Tree to Value to Following Option

Question 21

Multiple Choice

Use a binomial tree to value to following option. Assume rf = 0.045, rp = 0.14, σ = 0.20, E(CF1) = $62 million, g = 0.03, time horizon = 2 years, binomial period = 1 year, and cost = $500 million. What is the value of this project option?


A) $47 million
B) $57 million
C) $67 million
D) $77 million

Correct Answer:

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