a. Why did ShadeTree’s analysts extend the ROV analysis without a major competitor to six years? Is this a Decision reasonable approach to the analysis? Why or why not? Maker

b. Compute expected NPV values with the following alternative investment model outcomes. (Hint: Draw decision trees similar to those in Exhibits 14-15 and 14-16), 1. Defer the decision to invest one year: NPV[with competitor] = (€3,000,000) ; NPV[no competitor]

= €6,000,000 2. Invest now: NPV[with competitor, continue] = (€2,800,000); NPV[with competitor, terminate after one year] = (€500,000); NPV[no competitor] = €6,500,000 3. Compute the real option value of waiting.

4. What does the computation in part (3) indicate is the best investment strategy?