Answer Happy

10. Applications of option pricing to corporate finance Grotesque Inc. has a one-year proprietary license to develop software essential for creation of a new generation of FastWidgets. The project's estimated cost is $55 million. If consumers love the new FastWidget, Grotesque's revenues will skyrocket. Otherwise, if sales of FastWidgets turn out to be low, Grotesque will be ruined. Grotesque has an option similar to a option, which enables it to minimize the risk by taking the following action: O Undertake the project now to get ahead of the industry in creating the software. Wait for a year and then undertake the project if there is a great demand for the FastWidget. Wait for a year and then sell the license if consumers love FastWidget. O Abandon the project now because it is too risky.