Use simple distant trees and a $10\%$ per year discount rate to evaluate Project Cable, which

has two phases. You may invest in the first, in both or in neither. You may not invest in the

second phase without investing in the first. Phase $1$ requires an investment of $$100.$ One

year later, the project will deliver either $$160$ or $$60$ with equal probability. After the phase

one payout has been received, you may invest an additional $$100$ for phase $2.$ One year

later, phase $2$ pays out either $20\%$ more cash than Phase $1$ actually delivered or $($equally

likely$)20\%$ less. Assume no taxes. Assume a risk$-$free rate of interest is $5\%.$

$-$ How much would Project Cable be worth if it o:ered only the Phase $1$opportunity?

$-$ How much would Phase $2$ be worth if you had to choose today once and for all whether

or not to invest in it$?$

$-$ How much is Project Cable worth if you have access to both faces and can wait to

decide whether to invest in Phase $2?$

$-$ How would you allocate the value of Project Cable between assets$-$in$-$place and real

options?

$-$ Assuming that investment in Project Cable will require external funding, what dollar

amounts of debt and equity do you recommend $($Assume Capital markets are informed

and e:icient and that the risk$-$free rate of interest is $5\%)$