Your company has the opportunity to invest in a project which will cost $2,900 million. With the current political risk in the global economy, this project currently requires a very high discount rate and has a PV of future cash flows of $2,800 million. This project has a life of 15 years and the company has an opportunity to delay commencement for the next two years, so they can avoid a global recession. 

The project's cash flows volatility is the same as the volatility of company's returns, and the current risk-free rate is the same as you have applied previously.

 How much is this project worth without the real option? How much is this option worth?

Real Option 

• Determine the value of project without real option?

• Determine the value of real option?