Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 22, Problem 12PS
a.
Summary Introduction
To determine: The present value of payoffs.
a.
Expert Solution
Answer to Problem 12PS
The present value of payoffs is $16,875,000.
Explanation of Solution
Determine the present value of payoffs
Excel Spreadsheet:
Therefore the present value of payoffs is $16,875,000.
b.
Summary Introduction
To determine: The abandonment value.
b.
Expert Solution
Answer to Problem 12PS
The abandonment value is $1,936,448.60.
Explanation of Solution
Determine the gain value
The gain value is calculated if the demand is buoyant.
Therefore the gain value is 33.33%.
Determine the loss value
The loss value is calculated if the demand is sluggish.
Therefore the loss value is -11.11%.
Determine p
The value of put can be calculate using the risk neutral method, were p is identical to the probability of increase in the asset value.
Therefore p is 0.408.
Determine the abandonment value
If the demand is sluggish the payoffs will be $0 and if the demand is buoyant the payoffs is $3,500,000.
Therefore the abandonment value is $1,936,448.60.
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Ends Apr 27
Explain why we start with Sales
forecasts when we do our financial
forecasting. What are the limitations
of the Percent of Sales Forecasting
method?
Chapter 22 Solutions
Principles of Corporate Finance
Ch. 22 - Real options Respond to the following comments. a....Ch. 22 - Prob. 2PSCh. 22 - Real options True or false? a. Real-options...Ch. 22 - Prob. 4PSCh. 22 - Real options Describe each of the following...Ch. 22 - Expansion options Look again at the valuation in...Ch. 22 - Expansion options Look again at Table 22.2. How...Ch. 22 - Prob. 8PSCh. 22 - Timing options Look back at the Malted Herring...Ch. 22 - Prob. 10PS
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