Week8-Ch25 Toolkit

Week8-Ch25 Toolkit - 4 /1 /2 0 1 0 Chapter 25. To l Kit for...

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Unformatted text preview: 4 /1 /2 0 1 0 Chapter 25. To l Kit for Real Options W A C = 1 4 % R is k- f r e r a t e = 6 % In it ia l c o s t o f p r o je c t = $5 0 D C F A n a lys is E xp e c t e d a n u a l c a s h f lo w s ( in m il io n s ) : P r o b a b ilit y C a s h F lo w P r o b . x C F 2 5 % $3 $8 .2 5 5 0 % $2 5 $1 2 .5 0 2 5 % $5 $1 .2 5 E xp e c t e d C F = $2 .0 T im e L in e Ye a r 1 2 3 E xp e c t e d C F ( $5 0 ) $2 .0 $2 .0 $2 .0 N P V = $1 .0 8 Figure 25-1 DCF and Decision Tre Analysis for the Investment Timing Option (Milions of Dolars) P a r t 1 . Sc e n a r io A n a lys is : P r o c e d w it h P r o je c t T o d a y F u t u r e C a s h F lo w s N P V o f t h is P r o b a b ilit y D a t a f o r N o w : Ye a r 0 Ye a r 1 Ye a r 2 Ye a r 3 P r o b a b ilit y x N P V St d D e via t io n $3 $3 $3 $2 6 .6 1 0 .2 5 $6 .6 5 163 High- $5 0 Average $2 5 $2 5 $2 5 $8 .0 4 0 .5 0 $4 .0 2 24 Low $5 $5 $5- $38 .39 0 .2 5- $9 .6 0 389 1 .0 57 = V a r ia n c e o f P V E xp e c t e d va lu e o f N P V s = $1 .0 8 $2 4 .0 2 2 .32 P a r t 2 . D e c is io n - T r e A n a lys is : Im p le m e n t in O n e Ye a r O n ly If O p t im a l F u t u r e C a s h F lo w s N P V o f t h is P r o b a b ilit y D a t a f o r N o w : Ye a r 0 Ye a r 1 Ye a r 2 Ye a r 3 Ye a r 4 P r o b a b ilit y x N P V St d D e via t io n- $5 0 $3 $3 $3 $2 3.35 0 .2 5 $5 .8 4 49 High W a it Average- $5 0 $2 5 $2 5 $2 5 $7 .0 5 0 .5 0 $3.5 3 3 Low $0 $0 $0 $0 $0 .0 0 .2 5 $0 .0 2 1 .0 73 = V a r ia n c e o f P V E xp e c t e d va lu e o f N P V s = $9 .36 $8 .5 7 0 .9 2 N o t e s : Figure 25-2 Sensitivity Analysis for the Investment Timing Option Decision Tre (Milions of Dolars) F u t u r e C a s h F lo w s N P V o f t h is P r o b a b ilit y D a t a f o r N o w : Ye a r 0 Ye a r 1 Ye a r 2 Ye a r 3 Ye a r 4 P r o b a b ilit y x N P V St d D e via t io n- $5 0 $3 $3 $3 $2 0 .0 4 0 .2 5 $5 .0 1 43 High Average- $5 0 $2 5 $2 5 $2 5 $3.7 4 0 .5 0 $1 .8 7 5 Low $0 $0 $0 $0 $0 .0 0 .2 5 $0 .0 12 1 .0 60 = V a r ia n c e o f P V E xp e c t e d va lu e o f N P V s = $6 .8 $7 .7 5 1 .1 3 C o s t o f C a p it a l U s e d t o D is c o u n t t h e Ye a r 1 C o s t $6 .8 3.0 % 4 .0 % 5 .0 % 6 .0 % 7 .0 % 8 .0 % 9 .0 % 8 .0 % $1 3.1 $1 3.4 6 $1 3.8 0 $1 4 .1 4 $1 4 .4 7 $1 4 .7 9 $1 5 .1 9 .0 % $1 .7 8 $1 2 .1 3 $1 2 .4 7 $1 2 .8 1 $1 3.1 4 $1 3.4 7 $1 3.7 8 1 0 .0 % $1 0 .5 0 $1 0 .8 5 $1 .2 0 $1 .5 3 $1 .8 6 $1 2 .1 9 $1 2 .5 1 1 .0 % $9 .2 7 $9 .6 2 $9 .9 7 $1 0 .30 $1 0 .6 4 $1 0 .9 6 $1 .2 8 1 2 .0 % $8 .0 9 $8 .4 $8 .7 8 $9 .1 2 $9 .4 5 $9 .7 8 $1 0 .0 9 1 3.0 % $6 .9 5 $7 .30 $7 .6 4 $7 .9 8 $8 .31 $8 .6 4 $8 .9 5 1 4 .0 % $5 .8 5 $6 .2 0 $6 .5 4 $6 .8 $7 .2 1 $7 .5 4 $7 .8 5 1 5 .0 % $4 .7 9 $5 .1 4 $5 .4 8 $5 .8 2 $6 .1 5 $6 .4 8 $6 .7 9 1 6 .0 % $3.7 $4 .1 2 $4 .4 6 $4 .8 0 $5 .1 3 $5 .4 5 $5 .7 1 7 .0 % $2 .7 8 $3.1 3 $3.4 7 $3.8 1 $4 .1 4 $4 .4 6 $4 .7 8 1 8 .0 % $1 .8 3 $2 .1 8 $2 .5 2 $2 .8 6 $3.1 9 $3.5 1 $3.8 3 N o t e s : R e a l O p t io n A n a lys is Figure 25-3 Estimating the Input for "Stock Price" in the Option Analysis...
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This note was uploaded on 02/15/2012 for the course FI 500 taught by Professor Jason during the Spring '12 term at SPSU.

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Week8-Ch25 Toolkit - 4 /1 /2 0 1 0 Chapter 25. To l Kit for...

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