A) Using the following information, compute NPV if we proceed TODAY as if there is no option.
B) Using the real option methodology, Should Kim wait a year? Compute NPV of waiting! Use WACC to disocunt ALL cash flows. Should we wait or proceed now?
Kim is considering purchuse= $ 17,000
Net Cash Flows=2,800
If wait one year---
Purchuse price= $ 17,500
High Cash flow= $3,800
Chance of high cash flow= 55%
Low cash flow= $ 1,400
Years project will go on =20
WACC=12%