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B. Ltd. is considering a project requiring initial outlay of 10 Lac. The expected cash inflow from operation is 170,000 annually for 15 years. Cost

B. Ltd. is considering a project requiring initial outlay of 10 Lac. The expected cash inflow from operation is 170,000 annually for 15 years. Cost of capital is 18%. The consultancy group believes that the Govt. is considering a change in its industrial policy. Under this, they shall

have an option of making further investment of 2 lac at the end of 5th year. The new investment will result in CFAT of 170,000 for year 5 to 15. Value the option.

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