9. In class, we reviewed the flexible option in Chapter 13 Section 13.5, in which a company "switched" products. Dr. H mentioned that often these flexible options can contain a mix of one or more options. For the option we discussed in class, that is provided in Figure 13.4 below, explain/identify where in the problem the other options (timing (delay), abandon, growth) appear. Figure 13.4. Analysis of a Flexibility Option (Dollars in Thousands) NPVO 3 Parti Project without the Flexibility Option Outcome Strong demand Weak demand Prob 50% 50% 0 -$5,000 -$5,000 Cash Flow at End of Period 1 2 $2,500 $2.500 $1,500 $1,500 $2,500 $1,500 Expected NPV 12% $1,005 -$1,397 -5196 3 Part II. Project with the Flexibility Option Outcome Strong demand Weak demand Prob. 50% 50% Cash Flow at End of Period 1 2 $2,500 $2,500 $1,500 $2,250 $5,100 -55,100 NPVG 12% 5905 $360 5270 $2.500 $2,250 Expected NPV Switch products Partill. Value of the Option Expected NPV with the flexibility option Expected NPV without the flexibility option 3270 -5196 NA CASE 1: If the expected NPV without the flexibility option is positive, then Value of the Option Expected NPV with the Expected without the havien Havihunin CASE 2: If the expected NPV without the flexibility option is negative, then Value of the Option Expected NPV with the 0 $270 Note: a negative NPV project does not have fox/bility option, then it would not be undertaken. In these cases, the expected NPV without the flexibility option is zero. VALUE OF OPTION $270 9. In class, we reviewed the flexible option in Chapter 13 Section 13.5, in which a company "switched" products. Dr. H mentioned that often these flexible options can contain a mix of one or more options. For the option we discussed in class, that is provided in Figure 13.4 below, explain/identify where in the problem the other options (timing (delay), abandon, growth) appear. Figure 13.4. Analysis of a Flexibility Option (Dollars in Thousands) NPVO 3 Parti Project without the Flexibility Option Outcome Strong demand Weak demand Prob 50% 50% 0 -$5,000 -$5,000 Cash Flow at End of Period 1 2 $2,500 $2.500 $1,500 $1,500 $2,500 $1,500 Expected NPV 12% $1,005 -$1,397 -5196 3 Part II. Project with the Flexibility Option Outcome Strong demand Weak demand Prob. 50% 50% Cash Flow at End of Period 1 2 $2,500 $2,500 $1,500 $2,250 $5,100 -55,100 NPVG 12% 5905 $360 5270 $2.500 $2,250 Expected NPV Switch products Partill. Value of the Option Expected NPV with the flexibility option Expected NPV without the flexibility option 3270 -5196 NA CASE 1: If the expected NPV without the flexibility option is positive, then Value of the Option Expected NPV with the Expected without the havien Havihunin CASE 2: If the expected NPV without the flexibility option is negative, then Value of the Option Expected NPV with the 0 $270 Note: a negative NPV project does not have fox/bility option, then it would not be undertaken. In these cases, the expected NPV without the flexibility option is zero. VALUE OF OPTION $270