You have a project valued at $200$ that could increase or decrease by $25\%$ per period for two periodsThe project has three embedded options:

$1.$ option to abandon at $190$;

$2.$ a contraction option with a strike of $50$ with an $80\%$ of original value; and

$3.$ an expansion option with a strike of $70$ with $130\%$ of original value.

The risk-free rate is $5\%$ and the WACC is $10$.

What is the value of all the options combined?

Answer rating: 100% (QA)

To calculate the value of the options combined we need to consider the potential changes in the proj... View the full answer