Problem $12-53($Algo$)$ Real Options and Sensitivity Analysis $[$LO $12-4,12-5]$

Refer to the XYZ Company example in the chapter and the results in Panels A and B of Exhibit $12\mathrm{.}7.$ On the basis of

this information, management of the company has decided to delay the implementation of the project for $1$ year.

Those managers are now interested in knowing how sensitive this decision is with respect to the assumptions

they've made regarding the basic analysis. Therefore, they have asked you to prepare some supplementary

analyses regarding Panel B of Exhibit $12\mathrm{.}7.$

Required:

Holding everything else constant, what is the expected NPV of theDecision Trees: Real Options Analysis $($Investment$-$Timing Option$)$

Source: Microsoft Excel

$\backslash$table$[[,A,$B$,C,D,E,F,G,H,$I,$J,K$ decision if the probabilities for the three

scenarios are as follows: high $(21\%),$ medium $(51\%),$ and low $(28\%)?$

Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three

scenarios are as follows: high $(34\%),$ medium $(38\%),$ and low $(28\%)?$

Prepare a $53$ table containing the estimated NPV of the decision to delay for each combination of the

following: risk$-$free rate of interest $(4\%,5\%,6\%)$ and weighted$-$average cost of capital $,$ and $16\%.$

For example, one cell in your table would be the estimated NPV of the project if the risk$-$free rate of interest is $4\%$

and the weighted$-$average cost of capital is $12\%.$