12. Chrustuba Inc. is evaluating a new project that would cost $8.6 million at t = 0. There is a 50% chance that the projectwould be highly successful and generate annual after-tax cash flows of $5.4 million during Years 1, 2, and 3. However,there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If theproject is highly successful, it would open the door for another investment of $12 million at the end of Year 2, and thisnew investment could be sold for $24 million at the end of Year 3. Assuming a WACC of 9.0%, what is the project'sexpected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations.a. $3,716b. $2,787c. $4,460d. $3,159e. $2,973 10. Games Unlimited Inc. is considering a new game that would require an investment of $22.0 million. If the new gameis well received, then the project would produce cash flows of $9.5 million a year for 3 years. However, if the market doesnot like the new game, then the cash flows would be only $5.8 million per year. There is a 50% probability of both goodand bad market conditions. The firm could delay the project for a year while it conducts a test to determine if demandwould be strong or weak. The project's cost and expected annual cash flows would be the same whether the project isdelayed or not. If the WACC is 9.0%, what is the value (in thousands) of the investment timing option? Do not roundintermediate calculations.a. $751b. $704c. $939d. $845e. $1,033

Note: Given problem has 2 multiple questions and as per QnA guidelines we can provie you solution…

12. Chrustuba Inc. is evaluating a new project that would cost $8.6 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.4 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of $12 million at the end of Year 2, and this new investment could be sold for $24 million at the end of Year 3. Assuming a WACC of 9.0%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. a. $3,716 b. $2,787 c. $4,460 d. $3,159 e. $2,973

12. Chrustuba Inc. is evaluating a new project that would cost $8.6 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.4 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of $12 million at the end of Year 2, and this new investment could be sold for $24 million at the end of Year 3. Assuming a WACC of 9.0%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. a. $3,716 b. $2,787 c. $4,460 d. $3,159 e. $2,973

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 3MC: Tropical Sweets is considering a project that will cost $70 million and will generate expected cash...

See similar textbooks

Similar questions

Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
Tropical Sweets is considering a project that will cost $70 million and will generate expected cash flows of $30 million per year for 3 years. The cost of capital for this type of project is 10%, and the risk-free rate is 6%. After discussions with the marketing department, you learn that there is a 30% chance of high demand with associated future cash flows of $45 million per year. There is also a 40% chance of average demand with cash flows of $30 million per year as well as a 30% chance of low demand with cash flows of only $15 million per year. What is the expected NPV?
9. Chrustuba Inc. is evaluating a new project that would cost $8.0 million at t= 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.4 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only S1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of Ss10 million at the end of Year 2, and this new investment could be sold for $20 million at the end of Year 3. Assuming a WACC of 8.5%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. a. $3,942 b. $4,318 c. $4,506 d. S3,755 e. $3,379 10. Games Unlimited Inc. is considering a new game that would require an investment of $21.0 million. If the new game is well received, then the project would produce cash flows of $9.5 million a year for 3 years. However, if the…
WorldTrans is evaluating a new project that would cost $8.2 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $6.2 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of $10 million at the end of Year 2, and this new investment could be sold for $20 million at the end of Year 3. Assuming a WACC of 8.5%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. Group of answer choices $5,720 $3,661 $4,576 $5,492 $5,034
9. Chrustuba Inc. is evaluating a new project that would cost $8.0 million at t=0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.4 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of $10 million at the end of Year 2, and this new investment could be sold for $20 million at the end of Year 3. Assuming a WACC of 8.5%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. a. $3,942 b. $4,318 c. $4,506 d. $3,755 e. $3,379
Chrustuba Inc. is evaluating a new project that would cost $8.2 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $6.2 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of $10 million at the end of Year 2, and this new investment could be sold for $20 million at the end of Year 3. Assuming a WACC of 10.0%, what is the project's expected NPV (in thousands) after taking this growth option into account?
CT Inc. is evaluating a project that would cost P8 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of P6 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only P1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of P10 million at the end of Year 2, and this new investment could be sold for P20 million at the end of Year 3. However, if the project is unsuccessful, the new P10 million investment at the end of Year 2 would only be sold for P5,000,000 at the end of Year 3. Assume a WACC of 12.0%. Listed below are the requirements for this data set: What is the project's expected NPV if the company would not take the growth option? (Round final answer to the nearest peso) What is the project's expected NPV after taking into account this growth option? (Round final answer to the…
| Frontier Corp. is considering a new product that would require an after-tax investment of $1,400,000 at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $650,000 at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $100,000 per year. There is a 70% probability that the market will be good. Tsai Corp. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows-only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $108,226.89 b. $137,743.32 c. $167,259.75 d. $196,776.18 e. $216,453.79
Singh Development Co. is deciding whether to proceed with Project X.The cost would be $11 million in Year 0. There is a 50% chance that X would be hugelysuccessful and would generate annual after-tax cash flows of $7 million per year duringYears 1, 2, and 3. However, there is a 50% chance that X would be less successful and wouldgenerate only $1 million per year for the 3 years. If Project X is hugely successful, it wouldopen the door to another investment, Project Y, which would require an outlay of $8 millionat the end of Year 2. Project Y would then be sold to another company at a price of$16 million at the end of Year 3. Singh’s WACC is 9%.a. If the company does not consider real options, what is Project X’s expected NPV?b. What is X’s expected NPV with the growth option?c. What is the value of the growth option?
JBL Inc. is considering a new product that would require an after-tax investment of $1,400,000 at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $ 650,000 at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $100,000 per year. There is a 70% probability that the market will be good. JBL Inc. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows-only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $108, 226.89 b. $ 137, 743.32 c. $167, 259.75 d. $196, 776.18 e. $216, 453.79
Feldman Corp. is considering a new product that would require an investment of $8 million at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $3.4 million at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $1.85 million per year. There is a 65% probability that the market will be good. Foltz Corp. could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not; however, the timing of the cash flows would change. (There would be the same number of cash flows—only the cash flows would be extended out one extra year.) The project's WACC is 10%. What is the value of the project after considering the investment timing option? a. $144,867.15 b. $269,039.00 c. $357,188.00 d. $413,906.15 e. $455,296.77
martin development company is deciding whether to proceed with Project X. The cost would be $9 million in year 0, there is a 50% chance that X would be hugely successful and would generate a cash after tax flow of $6 million per year during years 1, 2 and three. however there is a 50% chance that X would be less successful and would generate only $1 million per year for the three years. If Project X is hugely successful it would open the door to another investment project why which would require an outlay of 10 million dollars at the end of year 2. project Y would then be sold to another company at a price of $20 million at the end of year 3 Martins weighted average cost of capital is 11%. A)if the company does not consider real options what is Project X expected NPV? b) What is X is expected NPV with the growth option? c)what is the value of the growth option?