NPV of the project to purchase White Paper today = -$19.0099 million.

If Hart Lumber wait a year to purchase and the net annual cash flow of $30 million occurs, HLs best course of action is to sell the paper business after 3 years of operation

(NPV = -$27.1468million). If HL continue to operate, then NPV = -$78.9889 million in this scenario.

If HL wait for a year and the net annual cash flow of $50 million occurs, its best course of action is to keep the paper business until the end of its life (NPV = 45.3430 million in this senario).

Expected NPV with 1-year delay = $9.0981 million.

1) a timing option allowing it to wait to invest; and

2) an abandonment option allowing it to sell White Paper in 3 years. Value of real options = $28.108 million.

at u) Is considering the purchase of a paper company, White Paper Co., Whicn would require an initial investment of $300 million. HL estimates that White Paper would provide constant net cash flows at the end of each of the next 20 years. Aftef 20 years) the paper business will have a zero residual value. The opportunitycosrdTcapital is T3% While HL's best guess is that the net cash flows that White Paper can produce will be S40 million a year, it recognizes that there is a 50% chance that thenet cash flows will be million a year, and a 50% chance that the net cash flows will be $30 million-a year for20 subsequent years. One year from now, HL will find out whether White Paper's cash flows will be $30 or $50 million. Additionally, HL recognizes that, if it wanted, it could sell White Paper 3 years from now for $280 million QUESTIONS [5 marks] What is the NPV of the project to purchase White Paper today? What is HL's best course of action if it wait for a year, and the net annual cash flow of $30 million occurs? 1. 2. 5 marks 5 marks) 5 marks 3. What is HL's best course of action if it wait for a year, and the net annual cash flow of $50 million occurs? What is the expected NPV of the project to purchase White Paper, not today, but one year from now? 4. Name two types of real options embedded in this project. Calculate the combined value of [10 marks