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Unformatted text preview: will be -$32.70 million. However, if we wait one year, we will find out additional information regarding demand. If demand is low, we wont implement project. If we wait, the up-front cost and cash flows will stay the same, except they will be shifted ahead by a year. The value of any real option increases if the underlying project is very risky or if there is a long time before you must exercise the option. This project is risky and has one year before we must decide, so the option to wait is probably valuable....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08