Mett Co. is planning to develop a new product. A year after the launch of the product, it can generate additional cash flows for the company of either £250,000, £110,000, £90,000 or £50,000, with all four scenarios equally likely. The project requires an initial investment of £90,000. The company’s beta is 0.65, its cost of capital is 6%, and the riskfree rate is 3%. Assume perfect capital markets. A. What is the Net Present Value (NPV) of the project?

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.