11. Catoosa Company is performing real options analysis for a new product. If demand for the product is high, the present value of future cash flows will be $800,000. If demand for the product is low, the present value of future cash flows will be $200,000. Catoosa could expand the scope of its sales after a year, which would have a present value cost of $100,000 but would increase the present value of future cash flows from the product by 30%.

Determine which decision the firm will make if demand for the product is high and if demand for the product is low.

11. Catoosa Company is performing real options analysis for a new product. If demand for the product is high, the present value of future cash flows will be $800,000. If demand for the product is low, the present value of future cash flows will be $200,000. Catoosa could expand the scope of its sales after a year, which would have a present value cost of $100,000 but would increase the present value of future cash flows from the product by 30%.
Determine which decision the firm will make if demand for the product is high and if demand for the product is low.