Question: Simple Example - build a large or small restaurant. Which has the highest expected NPV (P= Probability)? S26,000 Hig P(High Demand) 0.60 Larg P(Low Demand)

Simple Example - build a large or small restaurant. Which has the highest expected NPV (P= Probability)? S26,000 Hig P(High Demand) 0.60 Larg P(Low Demand) - 0.40 Lo w $15.000 $24.000 Hig Smal 1 Lo $19,000 Wait Option Example - Build a restaurant now or wait 1 year. Which has the higher expected NPV? What is the value of the Wait option? $130,000 P(High Demand) = 0.60 Hig Place Perebility 0.40 Buil d Now Lo $100,000 w $130,000 P High Demand Hig 0.55 Wait a year P Low Demand) - 0.45 Lo $100,000 FNCE 3500 Exercise Part 3 - Test 2 Redux #1 Commut full Simple Example - build a large or small restaurant. Which has the highest expected NPV (P= Probability)? S26,000 Hig P(High Demand) 0.60 Larg P(Low Demand) - 0.40 Lo w $15.000 $24.000 Hig Smal 1 Lo $19,000 Wait Option Example - Build a restaurant now or wait 1 year. Which has the higher expected NPV? What is the value of the Wait option? $130,000 P(High Demand) = 0.60 Hig Place Perebility 0.40 Buil d Now Lo $100,000 w $130,000 P High Demand Hig 0.55 Wait a year P Low Demand) - 0.45 Lo $100,000 FNCE 3500 Exercise Part 3 - Test 2 Redux #1 Commut full

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