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Calculate the value of real option

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Question

You have just invested $1200 in a project. If a key regulation gets approved (with a probability of 45%) in one year, the project will generate $3000 two years from now. Otherwise, the project will generate only $500 two years from now. You have the option to walk away and receive a refund of $1272 one year from now, right after announcement of the regulation approval decision. The appropriate discount rate is 6%. Calculate the value of this real option.

Reference no: EM133272598

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