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A project with an up - front cost at t = 0 of $ 1 5 0 0 is being considered by a cloud computing
A project with an upfront cost at t of $ is being considered by a cloud computing firm Upath Corporation. All dollars in this problem are in thousands. The project's subsequent cash flows are critically dependent on costumers demand. There is a chance that the demand will be high, in which case Upath's expected cash flows will be $ at the end of each of the next seven years t to There is a that the demand will be low, in which case the expected cash flows will be only $ at the end of each of the next seven years t to Upath will know for sure one year from today about the customers demand.
Upaths weighted average cost of capital is The risk free rate is
What is the projects expected net present value?
Upath is considering whether to make the investment today or to wait a year to find out about the customers demand. If it waits a year, the project's upfront cost at t will remain at $ the subsequent cash flows will remain at $ per year if the demand is high and $ per year if the demand is low. However, if Upath decides to wait, the subsequent cash flows will be received only for six years t
Use decisiontree analysis to determine whether Upath should proceed with the project today or wait a year before deciding. What is the value of this option to delay if any? discount the cost of the project at riskfree rate when applicable
The CFO wants to use the BlackScholes model to estimate the value of the option to delay. Specify the value of X and T in the BlackSholes formula.
What would be the value of P in the Blacksholes formula?
Estimate the variance sigma squared in the BlackSholes formula.
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