Estimate the value of the investment timing option

Assignment Help Managerial Economics

Reference no: EM1373021

Tropical Sweets is planning a project that will cost $70 million and will create expected cash flows of $30 a year for next 3-years. The cost of capital for this type of project is 10% and the risk-free rate is 6%. After discussions with the marketing department, you learn that there is a 30 percent chance of high demand, with future cash flows of $45 million per year. There is a 40 percent chance of average demand, with cash flows of $30 million per year. If demand is low (a 30 percent chance), cash flows will be only $15 million per year. What is the expected NPV?
Use decision tree analysis to calculate the NPV of the project with the investment timing option.
Use a financial option pricing model to estimate the value of the investment timing option.
Use a financial option model to estimate the value of the growth option.

Reference no: EM1373021

Questions Cloud

Show the stages of new product development : Explain the stages of new-product development with respect to Jenny Wood and her flavored cream with coffee. Write two paragraphs on what you imagine would she have done in these stages?

Information related to job descriptions : Important information related to Job Descriptions - Explain what are some of the reasons your organization or the one you are familiar with should review and revise job descriptions?

Elle is walking to work along a sidewalk next to a road : Write an essay in reply to the following: Elle is walking to work along a sidewalk next to a road. A truck possessed by Fast Distribution Company (FDC) strikes as well as injures Elle

What is sociological theory : What is Sociological Theory? Include in your discussion definitions and questions that sociological theorists research and debate. Please include references.

Estimate the value of the investment timing option : Tropical Sweets is planning a project that will cost $70 million and will create expected cash flows of $30 a year for next 3-years. The cost of capital for this type of project is 10% and the risk-free rate is 6%.

Develop an understanding of their ethical principles : Review both Milton Friedman's Traditional View of Business Responsibility and Archie Carroll's Four Responsibilities of Business as well as develop an understanding of their ethical principles

Difference between profit-sharing plans and colas : Describe the difference between profit-sharing plans and COLAs and do you believe profit-sharing plans or COLAs are more beneficial to employees

Social change perspectives : Write down the main cause of social change, according to the Function list perspective and according to Conflict theoretical perspective?

Discuss women and hiring : Imagine that someone you know says they are tired of women getting the breaks in being hired.

User Account

All Pages