Response to the following :
Rework Problem 1 using the Black-Scholes model to estimate the value of the option. (Hint: Assume the variance of the project's rate of return is 6.87 percent and the risk-free rate is 8 percent.)
Problem 1:
1. Define each of the following terms:
a. Real options; managerial options; strategic options; embedded option
b. Investment timing option; growth option; abandonment option; flexibility option
c. Decision trees'
2. What factors should a company consider when it decides whether to invest in a project today or to wait until more information becomes available?