Discount rate 4.570 Risk-free rate 2.5% Scenario: No Real Options Start 2 5 7 Cash from Operations 3.0 5.0 6.9 8.0 10.0 11.9 15.0 minus: Capital Expenditures 1.0 5.0 5.5 2.0 2.3 2.5 2.0 2.3 = Net Cash Flow (NCF) (1.0) (2.0) (0.5) 4.9 5.8 7.5 9.9 12.8 Terminal Value 11.0 PV of NCF 37.7 Scenario: Real Options Start 2 4 6 Cash from Operations 3.0 5.0 6.9 8.0 10.0 11.9 15.0 minus: Capital Expenditures 1.0 2.0 2.3 2.5 2.0 2.3 = Net Cash Flow (NCF) (1.0) 3.0 5.0 4.9 5.8 7.5 9.9 12.8 Terminal Value 11.0 PV of NCF 46.6 PV of Cap. Ex. (Yrs. 1-2) 10.1