Question
Using a cost of capital of 14.25%, you estimate the NPV of a project with price variability using backward induction and derive a value of
Using a cost of capital of 14.25%, you estimate the NPV of a project with price variability using backward induction and derive a value of $8.6 million. You then reexamine your calculations by considering the option the firm has to abandon the project if prices fall to low. This gives you a new NPV value of $9.4 million. What is the value of the real option?
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Essentials Of Managerial Finance
Authors: Scott Besley, Eugene F. Brigham
13th Edition
0324258755, 9780324258752
