You can book a table at a garage sale, which will take place in a month, for $200

• You will have to incur a fixed cost of $300 of setting up the table, transporting items etc.

• If the weather is good, there will be a large turnout and you will make net profit of $400 (=700 300)

• If the weather is bad, you will lose $150 (150 300)

• The probability of good weather on that day is 0.6

• a) Calculate the NPV of the project where the decision we are making is one of whether we should book the table (Assume discount rate = 0%)

b) Is the NPV a good metric in this case?

c) Does NPV ignore something? Please explain

d) Based on the example above please explain the concept of a real option and calculate its value in the example