P11-32 (similar to) Question Help Real options and the strategic NPV Jenny Rene, the CFO of Asor Products, Inc., has just completed an evaluation of a proposed capital expenciture tor equipment that would expand the tim's manufacburing capacity. Using the traditlonal NPV methodology she found the project unacceptable because: radtional -$1,178D Before recommending rejection of the propased prcject, she has decided to assess whether real options might be embedded in the firm's cash fows. Her evaluation uncovered three options and their prohability: Option : Abandonmenf-The project could be abandoned at the end of 3 years, resulting in an addition to NPV of S1,100 Option 2: Growth if the projected outcomes occurred, an opportunity to expand the firm's product offerings further would become available at the end of 4 years. Exercise of this option is estimated to add $2,810 to the project's NPV. Option 3: Tirning Certain phases of the proposed project could be delayed if market and competitive conditions caused the firm's forecast revenues to develop more slowly than planned. Such a delay in implementation at that point has an NPV of $9,00. en y estima ed hat here was a 20 ch nce hat he abando nent ap cn tu d e lo be exercised, a 35% chance hat he grow h optior would be e eras e 1, and c n y a 5 d ance hal lhe mple er ti n o certain phases ofthe pro ct woul a ecl ming. a. Use lhe information provided to calculate the stategle NPV NPIrsegic. b. On the basis of your findings in part (a), what action should Jenny rocommend to management with regard to the proposed equipment expenditure? c. In genera haw dces lhis probern demonstrate the importance of considering rea options when making capital buageting decisions? tor Asor Products' proposed equipment expenditure. P11-32 (similar to) Question Help Real options and the strategic NPV Jenny Rene, the CFO of Asor Products, Inc., has just completed an evaluation of a proposed capital expenciture tor equipment that would expand the tim's manufacburing capacity. Using the traditlonal NPV methodology she found the project unacceptable because: radtional -$1,178D Before recommending rejection of the propased prcject, she has decided to assess whether real options might be embedded in the firm's cash fows. Her evaluation uncovered three options and their prohability: Option : Abandonmenf-The project could be abandoned at the end of 3 years, resulting in an addition to NPV of S1,100 Option 2: Growth if the projected outcomes occurred, an opportunity to expand the firm's product offerings further would become available at the end of 4 years. Exercise of this option is estimated to add $2,810 to the project's NPV. Option 3: Tirning Certain phases of the proposed project could be delayed if market and competitive conditions caused the firm's forecast revenues to develop more slowly than planned. Such a delay in implementation at that point has an NPV of $9,00. en y estima ed hat here was a 20 ch nce hat he abando nent ap cn tu d e lo be exercised, a 35% chance hat he grow h optior would be e eras e 1, and c n y a 5 d ance hal lhe mple er ti n o certain phases ofthe pro ct woul a ecl ming. a. Use lhe information provided to calculate the stategle NPV NPIrsegic. b. On the basis of your findings in part (a), what action should Jenny rocommend to management with regard to the proposed equipment expenditure? c. In genera haw dces lhis probern demonstrate the importance of considering rea options when making capital buageting decisions? tor Asor Products' proposed equipment expenditure