b) Consider the following project (Project A) which can be delayed up to one year (so that true demand can then be revea

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B Consider The Following Project Project A Which Can Be Delayed Up To One Year So That True Demand Can Then Be Revea 1 (116.49 KiB) Viewed 42 times

b) Consider the following project (Project A) which can be delayed up to one year (so that true demand can then be revealed). A discount rate of 10% should be applied in your analysis. Initial Investment = 3.2 million Projected (infinite) cash flows: with high demand = 400,000/yr {Probability - 50%} O with low demand = 200,000/yr {Probability - 50%} Evaluate the NPV of this project using both a traditional and real options approach? What is the value, if any, of the timing option? Recalculate your answers assuming the following cash flow projections (Project B Briefly discuss your and Project C) and all other variables remain the same. answers. Project B- Projected (infinite) cash flows: with high demand = 400,000/yr ● Project C- Projected (infinite) cash flows: with high demand = 450,000/yr with low demand = 150,000/yr with low demand = 300,000/yr (9 marks)