Question
. Rook, Inc. is making an investment of $1,000,000, which will earn future cash flows with a present value of $1,200,000 if the economy continues
.Rook, Inc. is making an investment of $1,000,000, which will earn future cash flows with a present value of $1,200,000 if the economy continues to improve.There is a 10% chance the economy will take a downturn, though, in which case the present values of future cash flows will be $900,000.Rook could sell off the assets associated with the investment if there is a downturn instead of continuing with the project, which will result in future cash flows with a total present value of $1,050,000
What is the value of the real options associated with this project?
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