a14whentobuild

a14whentobuild - Autumn 2011 Managerial Finance Prof....

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Autumn 2011 Managerial Finance Prof. Francisco Pérez-González Apex International: When to Build Read and prepare: When to Build (in the course reader). Big picture question: What is the optimal timing for an investment? What is the value of maintaining flexibility and delaying an investment decision? Questions: 1. Using the data in Tables 1 and 2 in the case, what is the value of each property using the discounted cash flow approach to valuation? a. If Apex can only buy or walk away from each of the four contracts, what is the right decision for each one? b. What is the value of these four contracts to Apex? 2. Use Black-Scholes to evaluate the option to extend each contract. a. How would this change your decision for each property? b. What is the value to Apex now? Excel tool: Black-Scholes option calculator (course website). Hint: Think about the market value of the asset (real estate) as the “stock” or underlying asset. Similarly, think about the option to delay an
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