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hello sir,
In part (a) of this question I didn’t understand how (Pa) was calculated for BSOP formula.
The NPV of the expansion is given in the question as $0.
Since the investment will be $15M in three years time, then for the NPV to be $0 the PV of the returns (Pa) must equal the PV of the investment.
The PV of $15 discounted at 12% for 3 years is $10.68M.
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