Assume you have just been hired as a financial analyst by Tropical Sweets Inc., a mid$-$size California company that specializes in creating exotic candies from tropical fruits such as mangoes, papayas, and dates. The firm$$s CEO, George Yamaguchi, recently returned from an industry corporate executive conference in San Francisco, and one of the sessions he attended addressed real options. Because no one at Tropical Sweets is familiar with the basics of real options, Yamaguchi has asked you to prepare a brief report that the firm$$s executives can use to gain a cursory understanding of the topic.

To begin, you gathered some outside materials on the subject and used these materials to draft a list of questions that need to be answered. Now that the questions have been drafted, you must develop the answers.

F$.$ Use a financial option pricing model to estimate the value of the investment timing option.

G$.$ Now suppose that the cost of the project is $$75$ million and the project cannot be delayed. However, if Tropical Sweets implements the project, then the firm will have a growth option: the opportunity to replicate the original project at the end of its life. What is the total expected NPV of the two projects if both are implemented?

H$.$ Tropical Sweets will replicate the original project only if demand is high. Using decision$-$tree analysis, estimate the value of the project with the growth option.

I. Use a financial option model to estimate the value of the project with the growth option.