Real options and the strategic NPV. Jenny Rene the CFO of Asor Products has just completed an evaluation of a proposed capital expenditure for equipment that would expand the firm's manufacturing capacity.

P12-18 (similar to) Real options and the strategic NPV Jenny Rene, the CFO of Asor Products, Inc, has just completed an evaluation of a proposed capital expenditure for equipment that would expand the firm's manufacturing capacity Using the traditional NPV methodology, she found the project unacceptable because NPV. $12000 tradition Before recommending rejection of the proposed project, she has decided to assess whether real options might be 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 $1,000 Option 2 Growth If the projected outcomes occurred, an opportunity to expand the firm's product offerings further would become available at the end of 4 years Exercise of this option is estimated to add $2,870 to the project's NPV Option 3: Ting Certain phases of the proposed project could be delayed if 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 $10,800 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 s (Round to the nearest dollar) Enter your answer in the answer box and then click Check Answer 3 parts remaining Clear All Check Answer P12-18 (similar to) Nuraditional - 1,20 SU Before recommending rejection of the proposed project, she has decided to assess whether real options might be embedded in the firm's cash flows. Her evaluation uncovered three options and their probability S Option 1: Abandonment-The project could be abandoned at the end of 3 years, resulting in an addition to NPV of $1,000 Option 2: Growth If the projected outcomes occurred, an opportunity to expand the firm's product offerings further would become available at the end of 4 years Exercise of this option is estimated to add $2,870 to the project's NPV Option 3 Timing-Certain phases of the proposed project could be delayed if 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 $10,800 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 strategic for Asor Products proposed equipment expenditure. b. On the basis of your findings in part (a), what action should Jenny recommend to management with rogard 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 nntinns is (Round in the nearer