Question: Help I posted already and didnt get the answer I was looking for. 2. Growth options Companies often come across projects that have positive NPV
2. Growth options Companies often come across projects that have positive NPV opportunities in which the company does not invest. Companies must evaluate the value of the option to invest in a new project that would potentially contribute to the growth of the firm. These options are referred to as. growth options. Consider the cast of Sunny co.: Sunny CO. is consldering a three year project that will require an initial investment of $45,000, It has estimated that the annual cash fows for the project under good conditions will bet $70,000 and $7,000 under bsd conditions, The firm believes that there is a 60% chance of good cenditions and a 40% chance of bad conditions. If the firm is using a weighted average cost of capital of 13%, the expected net present value (Nov) of the project is your answer to the nearest whole dollas) (Note: Round Sunny Co: wants to take a potentisl growth option into account when caleulating the projects expected NoV, If conditions are good, the firm win be abie to invest $2,000 in year 2 to generate an additional cash flow of $15,000 in yesr 2 If concivions are bad, the firm will not make any further thwethenes the prostet. Using the ieformation from the precteding problem, the expected Nov of this profect-when taking the growth option into account-is (Note: Found vour answer to the nearest whole oollan) Sunny Cols growth option is werth (Note: Roxane vour answer to the nearest whale dollar)
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