Problem 12-51 Real Options and Sensitivity Analysis [LO 12-4, 12-5) Refer to the XYZ Company example in the chapter and the results in Panels A and B of Exhibit 12.7. On the basis of this information, management of the company has decided to delay the implementation of the project for 1 year. Those managers are now interested in knowing how sensitive this decision is with respect to the assumptions they've made regarding the basic analysis. Therefore, they have asked you to prepare some supplementary analyses regarding Panel B of Exhibit 12.7. Required: 1. Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios are as follows: high (20%), medium (50%), and low (30 %)? 2. Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios are as follows: high (30%), medium (40%), and low (30 %)? 3. Prepare a 5x 3 table containing the estimated NPV of the decision to delay for each combination of the following: risk-free rate of interest (4%, 5%, 6%) and weighted-average cost of capital (13%, 14%, 15%, 16 %, and 17%). For example, one cell in your table would be the estimated NPV of the project if the risk-free rate of interest is 4% and the weighted-average cost of capital is 13%. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios are as follows: high (20%), medium (50 %), and low (30 %) ? (Enter your answers in millions. Do not round intermediate calculations. Round your final answers to 3 decimal places.) Scenario NPV (@t=0) High Medium FON 1. Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios are as follows: high (20%), medium (50%), and low (30%)? 2. Holding everything else constant, what is the expected NPV of the decision If the probabilities for the three scenarios are as follows: high (30%), medium (40%), and low (30%)? 3. Prepare a 5 * 3 table containing the estimated NPV of the decision to delay for each combination of the following: risk-free rate of interest (4%,5%, 6%) and weighted average cost of capital (13%, 14%, 15%, 16%, and 17%). For example, one cell in your table would be the estimated NPV of the project if the risk-free rate of interest is 4% and the weighted-average cost of capital is 13% Complete this question by entering your answers in the tabs below. Required: Required 2 Required 3 Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios are as follows: high (20%), medium (50%), and low (30%)? (Enter your answers in millions. Do not round Intermediate calculations. Round your final answers to 3 decimal places.) Scenario NPV (@t=0) High Medium Low Total Required 2 > the estimated NPV of the project it the risk-free rate of interest is 4% and the weighted-average cost of capital is 13%. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Holding everything else constant, what is the expected NPV of the decision of the probabilities for the three scenarios are as follows: high (30%), medium (40%), and low (30%)? (Enter your answers in milions. Do not round Intermediate calculations. Round your final answers to 3 decimal places.) NPV (@t-o) Scenario High Medium Low Total compiere uns quanwy we Required 1 Required 2 Required 3 Prepare a 5 * 3 table containing the estimated NPV of the decision to delay for each combination of the following: risk-free rate of interest (4%, 5%, 6%) and welghted average cost of capital (13%, 14%, 15%, 16%, and 17%). For example, one cell in your table would be the estimated NPV of the project if the risk-free rate of interest is 4% and the weighted-average cost of capital is 13%. (Enter your answers in millions. Do not round Intermediate calculations. Round your final answers to 2 decimal places.) Show less Risk-Free Rate 5% 6% WACC 13% WACC 14% WACC 15% WACC 16% WACC 17%
