ASSIGNMENT
A project has a present value (PV) of $100 million today and a 50% probability to be worth either $130 million or $90 million next year. Assume that the WACC is 10%, the simple annual risk-free rate is 4%, and the project costs $103 million today.
Should you do the project based on the NPV analysis?
If the project can be sold/abandoned for a resale value of $100 million next year, what is its value in terms of the decision tree analysis (DT)?
If the project can be sold/abandoned for a resale value of $100 million next year, what is its value in terms of the real option analysis (ROA)?
Why is the DT value different from the ROA value?
If the project can be sold/abandoned for a resale value of $100 million next year, what is its value in terms of the decision tree analysis (DT)?
