Discussion Post: Understanding NPV & Real Options
a) Understanding what the net present value (NPV) tells us.
• The NPV decision rule says to accept the project if the NPV is greater than zero. You perform a thorough capital budgeting analysis on a project that requires a $1,000,000,000 initial investment and calculate the net present value (NPV) as $1. Following the rule, you tell your boss she should accept the project. She laughs and says "do you think I would really invest $1,000,000,000 for a measly $1 NPV? You should be fired" How would you respond to her?
b) Real Options
• Give two examples of "real options" that you have come across in your professional life, or that may come up in projects in a business you wish to start, or that may come up in the projects at a company in which you hope to be employed.
The response must include a reference list. One-inch margins, double-space, Using Times New Roman 12 pnt font and APA style of writing and citations.