Question: Data: Real Option Data WACC= 14% Probability Cash Flow Risk-free rate = 2% 30% $50 Initial cost of project= $70 45% $30 Project life (years)

Data: Real Option Data WACC= 14% Probability Cash Flow Risk-free rate = 2% 30% $50 Initial cost of project= $70 45% $30 Project life (years) 3 25% $10 Proceed with Project Today without real option Future Cash Flows NPV of this Probability Now: Year 0 Year 1 Year 2 Year 3 Scenario Probability x NPV High $50 $50 $50 $46.08 0.30 $13.82 -$70 Average $30 $30 $30 -$0.35 0.45 -$0.16 Low $10 $10 $10 -$46.78 0.25 -$11.70 1.00 Expected value of NPVs = $1.97 Decision Tree Analysis: Timing Option: Implement in One Year Only if High Future Cash Flows NPV of this Probability Now: Year 0 Year 1 Year 2 Year 3 Year 4 Scenario Probability x NPV High $0 $50 $50 $50 $46.08 0.30 $13.82 Wait Average $0 $30 $30 $30 -$0.35 0.45 -$0.16 Low $0 $10 $10 $10 -$46.78 0.25 -$11.70 Expected PV of Future CFs = $1.97

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Valuing Real Options Data: Real Option Data WACC: Probability Cash Flow Risk-free rute = 309% Initial cost of project= 570 45% 530 Project life (years) 3 25% $10 Proceed with Project Today without...

Hello, Need help with the following:Please see Rubric thks Using information from"Are You Paying Too Much for That Acquisition?" List and describe the components used to calculate synergy value....

I have a Project I am working on for Portfolio Management. I finished most of the data entry and creating of tabs, but I still have about 30% of the project that I need help on. I expect it to take...

I need help with these questions. I will pay $30. This submission limit to $8 only. Can I get by tomorrow noon. 11/16/2017.Please provide excel with calculations Question 2 Assume that you are...

Homework #16 is taken from the class Capital Budgeting handout (attached), as follows: page 1, example #1 Using the information given, calculate the following: capital proportions, cost of debt, cost...

COVID-19: The Global Shutdown In the first months of 2020, a pandemic overwhelmed the world. COVID-19, commonly known as the coronavirus, spread from China and created a severe public health...

Shrek Casting Company is considering adding a new line to its product mix. The production line would be set up in unused space in Shrek's' main plant. The machinery's invoice price would be...

Case Study Analysis - only numbers/ equations are needed. CASE STUDY: CAPITAL BUDGETING Deadline May 7th 2016- Uploaded on the Blackboard Estimating the company's WACC, Analysis of Cash Flow of a...

Question 1: Cost of Capital A company is considering a 5-year project to produce and sell machines. The project will use land that was purchased for $9.0 million three years ago for a different...

please showball required solutions. Flax Industries is considering replacing a 4-year old FlaxXer Machine with a newer and more efficient FlaxXer Machine. You are to evaluate the problem based on the...

In what way might the MARR be adjusted? Group of answer choices a. Higher if the risk is low b. Higher if the risk is high c. Lower if the risk is high d. None of above

Check the fundamental theorem for gradients, using T = x2 + 4xy + 2yz3, the points a = (0, 0, 0), b = (1, 1, 1), and the three paths in Fig. 1.28:? (a) (0,0.0) ??? (1.0, 0) ??? (1, 1,0) ??? (1,...

Markus Company purchases supplies from France once a year. Would Markus be favorably affected if it establishes a currency swap arrangement and the dollar strengthens? The currency swap arrangement...

In Medical Sociology, we see that African-American males tend to live somewhat shorter lives than their male counterparts in various races. Based on researchers, what are some factors that may...