Josh Kidding, who has only read part of Chapter 10, decides to value a real option by (1)

setting out a decision tree, with cash flows and probabilities forecasted for each future outcome;

(2) deciding what to do at each decision point in the tree; and (3) discounting the resulting expected cash flows at the company cost of capital. Will this procedure give the right answer? Why or why not?

AppendixLO1