What is the value of the option

Assignment Help Accounting Basics
Reference no: EM131562687

Question - Determine the value of the option for the Weyer Company by delaying its investment for one year. Consider the value of the option is the difference between traditional present value analysis and real option analysis. The initial investment is for $7,000,000, but the investment will not be made until next year. The investment is being delayed so that Weyer's management can better determine the market for its product. There are two alternatives for sales in the next year of $13,000,000 or $8,000,000. Each sales level has an occurrence probability of 50%. The cost of capital for Weyer is 10%. If traditional present value analysis shows that the net present value of the project is $2,100,000, what is the value of the option (the ability to wait one year before executing or abandoning the project)?

Reference no: EM131562687

Questions Cloud

Provide examples of manufacturers in your geographic area : Provide examples of manufacturers in your geographic area and explain which system would be best for them
Offering investment to get particular return : An internet portal aimed at pet owners has just developed a nuclear sewing machine and offers you the opportunity to invest in the industrialisation.
Prepare cash budgets have minimum cash balance : You're going into business and need to set credit terms for your customers. Why do you suppose companies that prepare cash budgets have a minimum cash balance?
Synthesize and evaluate the research articles summarized : Identify the strengths & weaknesses of related research studies, with emphasis on the validity &reliability of conclusions and applications of the research.
What is the value of the option : The cost of capital for Weyer is 10%. If traditional present value analysis shows that net present value of project is $2,100,000, what is the value of option
How much money must be deposited at the end of each year : Interest given is 15% compounded quarertly. How much money must be deposited at the end of each year in order to have 500,000 at the end of yr 30?
Describe the reaction of your family members : Discuss what you thought Thomas was going to do with the $100 - Describe the reaction of your family members/friends.
Sample calculation ganados cost of capital : All other values remain the same as those presented in this chapter in "Sample Calculation Ganado's Cost of Capital."
Access your scenario generator report : Access your Scenario Generator Report, which includes a description of the organization, points to reflect on, a SWOT analysis, and directions.

Reviews

Write a Review

Accounting Basics Questions & Answers

  Assume that drummond heating and cooling co purchases a

assume that drummond heating and cooling co. purchases a delivery truck for 15000 cash plus sales taxes of 900 and

  What is the sampling

For most businesses, merchandise inventory is a major portion of the business's assets. Therefore, reporting an accurate amount on the financial statements.

  Why was marks initial forecast of call volume so far off

QNT 5160- Why was Mark's initial forecast of call volume so far off? What could have been the reasons for this? What could Mark have done differently to improve his initial forecast?

  In may of the current year s makes a gift of land basis of

in may of the current year s makes a gift of land basis of 60000 fmv of 240000 to his aunt t. after the gift aunt t

  List three expense accounts related to payroll

List three expense accounts related to payroll. - Describe when you would expect the account to be cleared to zero.

  Analyze time series of monthly returns

This assignment will require you to analyze time series of monthly returns. Start by retrieving MONTHLY data for the period of June 30, 2011 - June 30, 2015 from Yahoo website for

  On july 1 2010 spahn co pays 18000 to randle insurance co

on july 1 2010 spahn co. pays 18000 to randle insurance co. for a 3-year insurance contract. both companies have fiscal

  Problem regarding the potential immigrants

Assume that each immigrant who is allowed into the country and has the disease costs the United States $100,000, and each immigrant who enters and does not have the disease will contribute $10,000 to the national economy. Assume that 10% of all po..

  Blancher corporation had 495000 in invested assets sales

blancher corporation had 495000 in invested assets sales of 660000 income from operations amounting to 99000 and a

  The case for-or against-new orleans

Sometimes one's choices may involve catastrophic decisions and bear great risk and yet there can be no clear answer. For example, if a person gets a divorce, shutters a plant, sells a losing investment, or closes their business, will he or she be ..

  Royal carpet cleaning provided 90000 of services during

royal carpet cleaning provided 90000 of services during 2011 its first year of operations. all customers paid for the

  Differentiate between avoidable and unavoidable expenses

A segment is a candidate for elimination if (a) its revenues are less than its avoidable expenses, (b) it has a net loss.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd