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You have the option to open a store today at a cost of 30, which would generate a present value of profits of 50. You can also delay opening the store for a +1 years. The cost would then rise to 50. The store's profits each year have a volatility of 40% and the risk-free rate is 4%. a. Using the Black and Scholes formula, what is the value of delaying the store opening? b. Should you invest today or delay? (Fill in "invest" or "delay")

You have the option to open a store today at a cost of 30, which would generate a present value of profits of 50. You can also delay opening the store for a +1 years. The cost would then rise to 50. The store's profits each year have a volatility of 40% and the risk-free rate is 4%. a. Using the Black and Scholes formula, what is the value of delaying the store opening? b. Should you invest today or delay? (Fill in "invest" or "delay")

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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i know the value of delaying is 22.505, but how do I get there?
8. You have the option to open a store today at a cost of 30, which would generate present value of profits of 50. You can also delay opening the store for 2+1 years. The cost would then rise to 50. The store's profits each year have a volatility of 40% and the risk-free rate is 4%. a. Using the Black and Scholes formula, what is the value of delaying the store opening? b. Should you invest today or delay? (Fill in "invest" or "delay")
Transcribed Image Text:8. You have the option to open a store today at a cost of 30, which would generate present value of profits of 50. You can also delay opening the store for 2+1 years. The cost would then rise to 50. The store's profits each year have a volatility of 40% and the risk-free rate is 4%. a. Using the Black and Scholes formula, what is the value of delaying the store opening? b. Should you invest today or delay? (Fill in "invest" or "delay")
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