10/28/2015
ed California
, and dates.
ence in San
ts is familiar
ecutives
h flows of $30
ate is 6
chance of high
and, with
$15 per year.
he cost will
rs. However,
alue to the
company. Perform a qualitative assessment of the investment timing option’s value. Chapter 26
=Variance of PV
Data for
177
37
39
253
=Variance of PV
or not to
e option, it
lement the project,
atever its price
value of its
Std Deviation
Data for
417
0
417
835
=Variance of PV
Data for
9.1%
0.0%
9.1%
18.2%
=Variance of PV
Std Deviation
value of its
ent value of a
ion, we need
deviation of
e exercised.
ally, we need
Std Deviation
Note: use the NORMSDIST function.
ical Sweets
to replicate the
lemented?
the coefficient of
Data for
417.45
0.00
417.45
834.90
=Variance of PV
Data for
NPV this Prob. Std Deviation
Scenario x NPV
$58.02 $17.40 1,010
-$0.39 -$0.16 0
-$37.70 -$11.31 –
xpected NPV = $5.94
1,010 =Variance of PV
ard Deviation= $31.78
of Variation = 5.35
Std Deviation
analysis,
lemented?
do so.
835 =Variance of PV
alue at Year 3= $28.89
iation at Year 3= 0.39
e risk-free rate; other cash
sis
Case 2
6%
3
$75.00
$56.05
0.500
0.5215
-0.7032
0.6990 Note: we used the NORMSDIST function.
j. What happens to the value of the growth option if the variance of the project’s return is 14.2 percent? What if it
the coefficient of