A. In general, a lower volatility (see given) makes it more worth it to do the project expansion.

B. In order to calculate the value of the possibility of this expansion one can use the Black-Scholes formula. In this formula, the equivalent of the "current stock price" equals _______

C. which is nothing but ______

NO You and your brothers have just had a great idea for a new product, and you would like to try to bring it to life. You would need to immediately spend $15,000. Your pro- forma calculations show that an estimated $2,000 would be coming in each year in after-tax profits for the next 7 years. You believe 8% is appropriate to use for the discount rate. Unfortunately, according to these numbers the NPV of this pilot project is negative (which can be verified). Fortunately, though, you and your brothers completely disagree on how much profit may be coming in each year. The volatility of these annual profits is 53%. What this means is that if for this pilot project the profits turn out much higher, then you all agree that expanding this business might make a lot of sense. The expansion would involve adding 19 more of such products to your production line and this would take place when the first 7-year pilot product project is over. In general, a lower volatility (see given) makes it more worth it to do the project expansion. (Select] In order to calculate the value of the possibility of this expansion one can use the Black-Scholes formula. In this formula, the equivalent of the "current stock price equals (Select] , which is nothing but Select) HINT: You will not need to use some numbers that are given in this problem! In general, a lower volatility (see given) makes it more worth it to do the project expansion (Select] [ TRUE! In order to calcul FALSE! this expansion one can In order to calculate the value of the possibility of this expansion one can use the Black-Scholes formula. In this formula, the equivalent of the "current stock price" equa (Select ] " , which is $94,760 $99,351 nothing but Select) $107,736 $109,363 HINT: You will not need to us $115,439 h this problem! $117,235 $124,439 $127,926 In order to calculate the value of the possibility of this expansion one can use the Black-Scholes formula. In this formula, the equivalent of the "current stock price" equals (Select] , which is [ Select ] the initial cost of all new products the initial cost of all new products, discounted back from the year of the expansion HIN current value of total cash inflows from all new products less their total initial cost current value of total cash inflows from all new products total cash inflows from all new products less their total initial cost total cash inflows from all new products NO You and your brothers have just had a great idea for a new product, and you would like to try to bring it to life. You would need to immediately spend $15,000. Your pro- forma calculations show that an estimated $2,000 would be coming in each year in after-tax profits for the next 7 years. You believe 8% is appropriate to use for the discount rate. Unfortunately, according to these numbers the NPV of this pilot project is negative (which can be verified). Fortunately, though, you and your brothers completely disagree on how much profit may be coming in each year. The volatility of these annual profits is 53%. What this means is that if for this pilot project the profits turn out much higher, then you all agree that expanding this business might make a lot of sense. The expansion would involve adding 19 more of such products to your production line and this would take place when the first 7-year pilot product project is over. In general, a lower volatility (see given) makes it more worth it to do the project expansion. (Select] In order to calculate the value of the possibility of this expansion one can use the Black-Scholes formula. In this formula, the equivalent of the "current stock price equals (Select] , which is nothing but Select) HINT: You will not need to use some numbers that are given in this problem! In general, a lower volatility (see given) makes it more worth it to do the project expansion (Select] [ TRUE! In order to calcul FALSE! this expansion one can In order to calculate the value of the possibility of this expansion one can use the Black-Scholes formula. In this formula, the equivalent of the "current stock price" equa (Select ] " , which is $94,760 $99,351 nothing but Select) $107,736 $109,363 HINT: You will not need to us $115,439 h this problem! $117,235 $124,439 $127,926 In order to calculate the value of the possibility of this expansion one can use the Black-Scholes formula. In this formula, the equivalent of the "current stock price" equals (Select] , which is [ Select ] the initial cost of all new products the initial cost of all new products, discounted back from the year of the expansion HIN current value of total cash inflows from all new products less their total initial cost current value of total cash inflows from all new products total cash inflows from all new products less their total initial cost total cash inflows from all new products