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QUESTION 9 Real Options B Part 2: You rent office space so you can start a new company. You need to sign a 2-year lease
QUESTION 9 Real Options B Part 2: You rent office space so you can start a new company. You need to sign a 2-year lease for $10,000 a year due today and at 1. After one year, you will know if you new company will take off or not. There is a 25% chance that your company takes off and you will make $80,000 (t=2). There is a 75% chance your business does not succeed. If you do not succeed, you can rent the office space to another entrepreneur for $7,000 in the second year (paid at t=2). What is the NPV of this project with the option to abandon in the second year
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