Problem 1. In your new role as a project financial analyst, you are tasked to evaluate project Tetra, a new and innovative software that allows doctors from around the world to communicate current best practices in real time. The project has two phases: you may invest in the first, both, or neither. Phase 1 (Tetra 1) requires an initial investment of $100. One year later, Tetra 1 will produce project CFs of either $160 or $60, each with equal probability of occurrence. At this year 1 point and after cash flows have been received, you may invest an additional $100 for Tetra 2. One year later, Tetra 2 pays out either 20% more in project CFs than Tetra 1 or (equally likely) 20% less. No taxes need to be assumed.

Part 1 c: How much is Tetra project worth if you have access to both Tetra 1 and 2, but can wait to decide whether to invest in Tetra 2 after 1 year (i.e. can see Tetra 1 through)?

2 $0 2 45 Part 1c 46 Tetra 2 best 0 1 47 CAPEX 48 OCF $0 49 project CF 50 NPV tetra 2 best at year 1. $0.00 51 Tetra 2 worst 0 1 52 CAPEX 53 OCF $0 $0 54 project CF 55 NPV tetra 2 worst year 1. 56 NPV total tetra 2 at year 0. Hints: value Tetra 2 on it's own (ignore relevant CFs from Tetra 1). First at time 57 1, then discount back to time 0. NPV for whole project & 58 option accept/reject? (choose 1) Hints: You've already valued Tetra 1 in "Part 1a" (NPV from cell B20), now cell B56 is the NPV of Tetra 2, but remember the likelihood of taking on Tetra 2 is not 100%...calculate NPV of the whole project and the real option. 59 2 $0 2 45 Part 1c 46 Tetra 2 best 0 1 47 CAPEX 48 OCF $0 49 project CF 50 NPV tetra 2 best at year 1. $0.00 51 Tetra 2 worst 0 1 52 CAPEX 53 OCF $0 $0 54 project CF 55 NPV tetra 2 worst year 1. 56 NPV total tetra 2 at year 0. Hints: value Tetra 2 on it's own (ignore relevant CFs from Tetra 1). First at time 57 1, then discount back to time 0. NPV for whole project & 58 option accept/reject? (choose 1) Hints: You've already valued Tetra 1 in "Part 1a" (NPV from cell B20), now cell B56 is the NPV of Tetra 2, but remember the likelihood of taking on Tetra 2 is not 100%...calculate NPV of the whole project and the real option. 59