A)Phase 1

Rf
Out Flow
50%
50%

10%
100.00
160
60

PV of Out Flow
NPV
C)Phase 2

Pv
Out Flow
NPV

80.00
30.00
110.00
100
0.00

160

Worth of phase 2
50%
192
96 Expand
50%
128
64
160
50%
72
36 No Expand
50%
48
24
60
220
200
100 90.9091
109.091

-100

60

-100
1st phase

B)Project
50%
50%
50%
50%
50%
50%

160
60
50%
50%
50%
50%

192
128
72
48

80.00
30.00
48
32
18
12

Phase 1
Phase 2
100.00
100
###
110.00
110
100 90.90909 190.909
-9.09091

Out Flow
In flow
Pv
NPV
C)Project
50%
50%
50%
50%
50%
50%

Out Flow
In flow

160
60
50%
50%
50%
50%

192
128
72
48

Phase 1
Phase 2
100.00 90.90909
110.00
110

80.00
30.00
48
32
18
12

###

Pv
NPV

100 90.90909 190.909

0

So=100
192

128
72

48
-100
2nd phase

d)
Real Option
Pv of Expansion Project
Future Capital Investment

So
k
T
Rf

$200.00
100
1
10%

$145.45

Market A
out flow
Rf
50%
50%

1
100
5%
160
80

PV
NPV
Market B
out flow
Rf
50%
50%

55
5%
140
25

PV
NPV
D)
Market C
out flow
Rf
50%
50%

40
5%
55
40

PV
NPV

Market A

80
40
120
114.29
14.2857

70
12.5
82.5
78.57
23.5714

27.5
20
47.5
45.2381
5.2381

0
-100

1
160
80

Market B

d)Market C

0
-55

1
140
25

B)

0
-40

Time

Market A Market B
14.2857 23.571429
1
2
3
4
5
6

1
55
40