$1.$ How would you explain $areal$ option$?$

$2.$ What types $of$ real options exist?

$3.$ How $do$ real option valuations differ from discounted cash flow $(DCF)$ analysis?

$4.$ What$san$ example $of$ a real option consideration that would make sense $at$ your place

$of$ employment? See #$11of$ part $6of$ the Final Project for more detail $on$ the different

types $of$ real options.

$5.$ Try solving the following problem:

Pointer Projects $(PP)is$ considering a capital project with the following information:

$1.An$ initial outlay $of$ $$340,000,$ with a salvage value $of0at$ the end $of$ the project.

$2.$ The project life $is7$ years.

$3.$ The annual after$-$tax operating cash flows have $a25\%$ probability $of$ being $$35,000$ for

$7$ years, and $a75\%$ probability $of$ being $$94,000$ for the same $7$ years.

$4.$ The required rate $of$ return $is10\%.$

$5.$ After two years, the company has $an$ abandonment option, $of$ which Pointer Projects

would receive the after$-$tax salvage value $of$ $$110,000$ for its initial outlay.

$6.$ What $is$ the $NPVof$ the project, assuming the optimal abandonment strategy $(meaning$

that with higher cash flows $PP$ doesn$t$ abandon the project, and with lower cash flows

$it$ does$)?$ Consider your cash inflows and outflows when calculating $NPV.$