please help with A through c
that would expand the firm's manufacturing capacity. Using the traditional NPV methodology, she found the project unacceptable because NPVtradition - - $1,0000 Before recommending rejection of the proposed project, she has decided to assess whether there might be real options embedded in the firm's cash flows. Her evaluation uncovered three options and their probability Option 1. AbandonmentThe project could be abandoned at the end of 3 years, resulting in an addition to NPV of $1,030 Option 2. Growth-If the projected outcomes occurred, an opportunity to expand the firm's product offerings further would occur at the end of 4 years. Exercise of this option is estimated to add $2.230 to the project's NPV. Option 3: Timing-Certain phases of the proposed project could be delayed il 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 $9,300 Jenny estimated that there was a 20% chance that the abandonment option would need to be exercised, a 35% chance that the growth option would be exercised, and only a 5% chance that the implementation of certain phases of the project would affect timing a. The value of the real options is $. (Round to the nearest dolar) Enter your answer in the answer box and then click Check Answer, 2 3 parts Clear As remaining Chock Answer Before recommending rejection of the proposed project, she has decided to assess whether there might be real options embedded in the firm's cash flows. Her evaluation uncovered three options and their probability: Option 1: Abandonment--The project could be abandoned at the end of 3 years, resulting in an addition to NPV of $1,030 Option 2: Growth the projected outcomes occurred an opportunity to expand the firm's product offerings further would occur at the end of 4 years. Exercise of this option is estimated to add $2,230 to the project's NPV. Option 3: Timing Certain phases of the proposed project could be delayed il market and competitive conditions caused the firm's forecast revenues to develop more Jenny estimated that there was a 20% chance that the abandonment option would need to be exercised, a 35% chance that the growth option would be exercised, and only a 5% chance that the implementation of certain phases of the project would affect timing a. Use the information provided to calculate the strategic NPV, NPV trategi for Asor Products proposed equipment expenditure. b. Judging on the basis your findings in part (a)what action should Jenny recommend to management with regard to the proposed equipment expenditure? c. In general, how does this problem demonstrate the importance of considering real options when making capital budgeting decisions? a. The value of the real options is (Round to the nearest dollar) V2) 12) that would expand the firm's manufacturing capacity. Using the traditional NPV methodology, she found the project unacceptable because NPVtradition - - $1,0000 Before recommending rejection of the proposed project, she has decided to assess whether there might be real options embedded in the firm's cash flows. Her evaluation uncovered three options and their probability Option 1. AbandonmentThe project could be abandoned at the end of 3 years, resulting in an addition to NPV of $1,030 Option 2. Growth-If the projected outcomes occurred, an opportunity to expand the firm's product offerings further would occur at the end of 4 years. Exercise of this option is estimated to add $2.230 to the project's NPV. Option 3: Timing-Certain phases of the proposed project could be delayed il 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 $9,300 Jenny estimated that there was a 20% chance that the abandonment option would need to be exercised, a 35% chance that the growth option would be exercised, and only a 5% chance that the implementation of certain phases of the project would affect timing a. The value of the real options is $. (Round to the nearest dolar) Enter your answer in the answer box and then click Check Answer, 2 3 parts Clear As remaining Chock Answer Before recommending rejection of the proposed project, she has decided to assess whether there might be real options embedded in the firm's cash flows. Her evaluation uncovered three options and their probability: Option 1: Abandonment--The project could be abandoned at the end of 3 years, resulting in an addition to NPV of $1,030 Option 2: Growth the projected outcomes occurred an opportunity to expand the firm's product offerings further would occur at the end of 4 years. Exercise of this option is estimated to add $2,230 to the project's NPV. Option 3: Timing Certain phases of the proposed project could be delayed il market and competitive conditions caused the firm's forecast revenues to develop more Jenny estimated that there was a 20% chance that the abandonment option would need to be exercised, a 35% chance that the growth option would be exercised, and only a 5% chance that the implementation of certain phases of the project would affect timing a. Use the information provided to calculate the strategic NPV, NPV trategi for Asor Products proposed equipment expenditure. b. Judging on the basis your findings in part (a)what action should Jenny recommend to management with regard to the proposed equipment expenditure? c. In general, how does this problem demonstrate the importance of considering real options when making capital budgeting decisions? a. The value of the real options is (Round to the nearest dollar) V2) 12)
