EXAMPLE: Option to Expand Disney is considering investing $ 100 million to create a Spanish version of the Disney Channel to serve the growing Mexican market. A financial analysis of the cash flows from this investment suggest that the present value of the cash flows from the investment to Disney will be only $ 80 million. If the market in Mexico turns out to be more lucrative than currently anticipated, Disney could expand its reach to all of Latin America with an additional investment of $ 150 million any time over the next 10 years. While the current expectation is that the cash flows from having a Disney channel in Latin America is only $ 100 million, there is considerable uncertainty about both the potential for such a channel and the shape of the market itself, leading to significant variance in this estimate. The variance in the estimate of the project value is determined by using the annualized standard deviation in firm value of publicly traded entertainment firms in the Latin American markets, which is approximately 30%. The riskless rate is 4%. Should Disney Invest? EXAMPLE: Option to Expand Disney is considering investing $ 100 million to create a Spanish version of the Disney Channel to serve the growing Mexican market. A financial analysis of the cash flows from this investment suggest that the present value of the cash flows from the investment to Disney will be only $ 80 million. If the market in Mexico turns out to be more lucrative than currently anticipated, Disney could expand its reach to all of Latin America with an additional investment of $ 150 million any time over the next 10 years. While the current expectation is that the cash flows from having a Disney channel in Latin America is only $ 100 million, there is considerable uncertainty about both the potential for such a channel and the shape of the market itself, leading to significant variance in this estimate. The variance in the estimate of the project value is determined by using the annualized standard deviation in firm value of publicly traded entertainment firms in the Latin American markets, which is approximately 30%. The riskless rate is 4%. Should Disney Invest