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CHAPTER_22 - 1 × P –[N(d 2 × PV(EX =[0.4002 × 1.7...

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1 CHAPTER 22 Real Options Answers to Problem Sets 2. The company can buy furniture and resell (abandon) if the start-up fails, but the abandonment value of used furniture is not great. It’s often better to retain flexibility by renting. 4. a. You learn more about land prices and best use of the land. b. By developing immediately, you capture rents immediately. 7. a. True b. True c. True d. True e. True—the series of smaller plants generates real options, but the large plant may nevertheless be more efficient. 11. P = 1.7 EX = 2 σ = 0.15 t = 1.0 r f = 0.12 0.4029 ) 1.0 (0.15 0.2529 t σ d d 0.2529 /2 ) 1.0 (0.15 ) 1.0 )]/(0.15 /1.12 log[1.7/(2 /2 t σ t X)]/ σ log[P/PV(E d 1 2 1 1 = × = = = × + × = + = N(d 1 ) = N(-0.2529) = 0.4002 N(d 2 ) = N(-0.4029) = 0.3435 Call value = [N(d
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