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 a: How much would the Tetra project be worth if it offered only the Tetra 1 opportunity? Part 1 b: How much would Tetra be worth if you had to make the entire decision today, once and for all, whether or not to invest in Tetra? 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)? Utilize Typing Numbers is okay The Scenario Labels Hints Equations/functions 0.10 required return 0 Part 1 a Tetra 1 best Project CF PV Project CFS NPV $ (100.00) ($100.00) 45.45 1 160 $145.45 $ 0 Tetra 1 worst CAPEX PV Project CFS NPV NPV of whole project accept/reject? (choose 1) 0 1 2 Part 1 b Tetra 1 best, Tetra 2 best CAPEX OCF project CF NPV 0 2 0 2 0 1 2 0 2 22 Part 1 b 23 Tetra 1 best, Tetra 2 best 24 CAPEX 25 OCF 26 project CF 27 NPV 28 Tetra 1 best, Tetra 2 worst 29 CAPEX 30 OCE 31 project CF 32 NPV 33 Tetra 1 worst, Tetra 2 best 34 CAPEX 35 OCF 36 project CF 37 NPV 38 Tetra 1 worst, Tetra 2 worst 39 CAPEX 40 OCF 41 project CF 42 NPV 43 NPV overall 44 45 Part 1c 46 Tetra 2 best 47 CAPEX 48 OCF 49 project CF 50 NPV tetra 2 best at year 1. 51 Tetra 2 worst 52 CAPEX 53 OCF 54 project CF 55 NPV tetra 2 worst year 1. 56 NPV total tetra 2 at year 0. accept/reject? (choose 1) 0 1 2 $0 $0 $0.00 1 0 2 $0 $0 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 a: How much would the Tetra project be worth if it offered only the Tetra 1 opportunity? Part 1 b: How much would Tetra be worth if you had to make the entire decision today, once and for all, whether or not to invest in Tetra? 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)? Utilize Typing Numbers is okay The Scenario Labels Hints Equations/functions 0.10 required return 0 Part 1 a Tetra 1 best Project CF PV Project CFS NPV $ (100.00) ($100.00) 45.45 1 160 $145.45 $ 0 Tetra 1 worst CAPEX PV Project CFS NPV NPV of whole project accept/reject? (choose 1) 0 1 2 Part 1 b Tetra 1 best, Tetra 2 best CAPEX OCF project CF NPV 0 2 0 2 0 1 2 0 2 22 Part 1 b 23 Tetra 1 best, Tetra 2 best 24 CAPEX 25 OCF 26 project CF 27 NPV 28 Tetra 1 best, Tetra 2 worst 29 CAPEX 30 OCE 31 project CF 32 NPV 33 Tetra 1 worst, Tetra 2 best 34 CAPEX 35 OCF 36 project CF 37 NPV 38 Tetra 1 worst, Tetra 2 worst 39 CAPEX 40 OCF 41 project CF 42 NPV 43 NPV overall 44 45 Part 1c 46 Tetra 2 best 47 CAPEX 48 OCF 49 project CF 50 NPV tetra 2 best at year 1. 51 Tetra 2 worst 52 CAPEX 53 OCF 54 project CF 55 NPV tetra 2 worst year 1. 56 NPV total tetra 2 at year 0. accept/reject? (choose 1) 0 1 2 $0 $0 $0.00 1 0 2 $0 $0
