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Should lily propose this investment to your ceo

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Lily's company is very well-diversified, producing and selling all kinds of goods and services, with each division being approximately of the same value/size. The beta of your company is therefore effectively 1.00. The market risk premium (the average/expected difference between the market return and the risk-free rate) is 5.50% and the return on a long-term government bond is 6.25%. Lily has discovered an exciting opportunity to create a new medicine that will cure the common cold. This project will require a $1 billion investment, spread out equally between now (t = 0) and the end of this year (t = 1), and will produce $155 million dollars in perpetuity starting in year 2 (t = 2). Should Lily propose this investment to your CEO?

Reference no: EM132039663

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