Reference no: EM133060480
Your management team has put together the following projections for a project that your company may be interested in implementing.
Demand
|
Probability
|
Annual Cash Flow
|
High
|
20%
|
$100,000,000.00
|
Average
|
60%
|
$40,000,000.00
|
Low
|
20%
|
$10,000,000.00
|
Project's cost of capital
|
|
12%
|
Life of project
|
|
3
|
Required investment
|
|
$75,000,000.00
|
Use this information to answer the following questions.
1- Use the decision-tree procedure to project the expected standard deviation for the proposed project, ignoring any real option.
[Round the final answer to the nearest cent]
2- Use the decision-tree procedure to project the expected NPV for the proposed project, considering an investment timing option to wait one year before implementation.
[Round the final answer to the nearest cent]
3- Use the decision-tree procedure to project the expected standard deviation for the proposed project, considering an investment timing option to wait one year before implementation.
[Round the final answer to the nearest cent]
4-Use the decision-tree procedure to project the expected option value for the proposed project, considering an investment timing option to wait one year before implementation.
[Round the final answer to the nearest cent]
5- Use the Black-Scholes model to calculate the value of the timing option to wait one year if the strike price is the cost of the project, the risk-free rate is 2.5%, and the variance in future cash flows is 0.25.
[Round the final answer to the nearest cent]
6-Use the decision-tree procedure to project the expected NPV for the proposed project, considering a growth option to launch a second-generation project with the same cost and cash flows.
[Round the final answer to the nearest cent]
7-Use the decision-tree procedure to project the expected standard deviation for the proposed project, considering a growth option to launch a second-generation project with the same cost and cash flows.
[Round the final answer to the nearest cent]
8-Use the decision-tree procedure to project the expected option value for the proposed project, considering a growth option to launch a second-generation project with the same cost and cash flows.
[Round the final answer to the nearest cent]