Question: 13-2 ANALYZING A STRATEGY USING OPTION ANALYSIS Reliable Industries is considering the construction of a power plant investment in India. Reliables analysts calculate that the

13-2 ANALYZING A STRATEGY USING OPTION ANALYSIS Reliable Industries is considering the construction of a power plant investment in India. Reliables analysts calculate that the cost of building the plant is $600 million, and the internal rate of return (IRR) of the plant is 13%. The analysts also estimate that, given the experience of building the first plant, a second plant can be built for $550 million, and additional plants can be built for about $500 million each. The cost of capital is 16%. a. How would you evaluate whether or not to build this power plant in India? b. Are you evaluating a project or a strategy? c. How does the risk associated with the power plant strategy compare with the risk associated with the individual power plants?

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