What is the static npv and what is the strategic npv

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Management is considering entering into a contract to produce a product. The product will be sold at the end of second year for a price of $8. Below is the cash flow of a product under consideration by management. At the end of the second year, management has the option to abandon the project or continue with the development of the project for another investment of $6 million at the end of the second year.

Year	0	1	2
Investment($)	-1	-1	2

If the cost of the capital is 15% by continuous compounding, the risk-free rate is 5% and the volatility is 0.3. What is the Static NPV and what is the Strategic NPV?

Reference no: EM13181767

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