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* With the event “March 20” – Dhawan will miss the original schedule. However, he still receive profit with 3 events analysed in Question 1: pay 50%, pay 30% and pay 20%. We will use the result of question 1 in the event “delay” – He will lose 225,528 INR .

a) In the first set of calculations, the staff used a discount rate of 20%, a five-year time horizon, and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives?

the start of a project, or a mine with shutdown option is examples of such

Energy investments have been evaluated using diverse methods. Santos et. al. (2014) argue that conventional approaches such as Net Present Value (NPV) or Internal Rate of Return (IRR) do not consider relevant project characteristics like irreversibility, uncertainty and management flexibility. They propose that the Real Options Approach (ROA) has an advantage over conventional methods. The aim of this essay is to apply real options to a renewable energy investment (mini-hydro plant) using the binomial lattice tree developed by Cox, Ross and Rubinstein.

Suppose that S is $1.6m. Now the decision tree is what you see in Figure 3. The overall recommendation is:

10. The board of directors of the General Wheels Co. is considering seven large capital investments. These investments differ in the estimated long-run profit (net present value) they will generate, as well as in the amount of capital required, as shown by the following table (in units of millions of dollars). Investment Opportunity 1 2 3 4 5 Estimated profit Capital required 17 43 10 28 15 34 19 48 7 17

riskiness of the project’s cash flows. For the moment, we fudge the question of how to choose discount

When advising the client we must quantify the total risk exposure of the investment. This value is the required return. If the expected return is greater than the required return the investment should be made. I will use the following model in order to determine the required return:

The foremost step in decision making is to frame a question which is quiet dangerous as how one forms a question influence your choice.

His decision was based upon the IRR Rule, but comparing their NPVs at the cost of capital, Project A has a higher NPV. Therefore, he should have chosen Project A rather than Project B.

4. If the firm shares the market consensus of the future yen spot rate, its optimal choice, purely on a cost basis should be $0.0072 given this expectation and given that the firm made a decision.

3. If you have indentified several problems, describe a maximum of 3 alternatives to handle each one of them and evaluate the pros and cons of each alternative?

Accordingly, the expected selling price is dependent on the expected interest rate, that is p_e^B=A⁄i_e . Consequently, the expected capital gain or loss, G, is potentially

Calculator solution: CF0= -78,000; C01=22,000, F01=1; C02=32,000, F02=1 C03=38,000, F03=1 C04=46,000, F04=1 I=14 NPV = $18,805.82 b. The RADR approach prefers X over Y. The RADR approach combines the risk adjustment and the time adjustment in a single value. The RADR approach is most often used in business.

5. Success or failure of the company may depend upon a single or relatively few investment decision.