Zeta Corporation plans to invest in a project.The initial investment is €200 million and the next year's cash flow will be €20 million.There will be a perpetual annual cash flow stream of either €15 million or €4 million will occur each year thereafter,depending on whether the economy is good or bad one year from now.Assuming that the risk-free interest rate is 5 per cent per year,and that €1.00 invested in the market portfolio today will be worth either €1.30 (if the economy does well)or €0.80 (if the economy does poorly).What is the value of the project in the year 1 when the economy is bad?

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The Answer is A

Zeta Corporation Plans to Invest in a Project