I'll post one first, if you answer it correctly you get to post the next one!
Assume that The Home Depot is considering opening a small store in France. The store will cost 120 million FF to build, and the present value of the expected cash flows from the store is 100 million FF. Further assume that by opening this store, Home Depot acquires the option to expand into a much larger store any time over the next 5 years. The cost of expansion will be 200 million FF, and it will be undertaken only if the present value of the expected cash flows exceeds 200 million FF. At the moment, the present value of the expected cash flows from the expansion is believed to be only 150 million FF. If it were not, the Home Depot would have opened to larger store right away. The Home Depot still does not know much about the market for home improvement products in France, and there is considerable uncertainty about this estimate. The standard deviation of the estimate is 28.3%. The appropriate riskless rate is 6%.
(a) Calculate the value of this option to expand for The Home Depot.
(b) Should The Home Depot accept the project (i.e.open the small store) based on simple (naïve) capital budgeting analysis that you learnt in previous finance courses? Support your answer with numerical calculations.
(c) Should The Home Depot accept the project based on option pricing analysis that you learnt in this course? Support your answer with numerical calculations.
Posted by: durk
quit trying to get us to do your homework Troll!
Posted by: shiznit2169
Originally Posted by durk
quit trying to get us to do your homework Troll!
Posted by: MyK
I just thought it would be some good clean discussion!
Posted by: durk
ask viet john or rob those people are good with numbers
Posted by: maniclion
Thread reported!
Posted by: aceshigh
this thread is a disgrace wait till your mum finds out myk
Posted by: viet_jon
Originally Posted by durk
ask viet john or rob those people are good with numbers
hmmmm.....havn't seen you in a while there durk.
Posted by: KelJu
Ewwww Cost/Benefit analysis sucks balls. I paid my dues already, you can have that shit MyK.
Posted by: MyK
Originally Posted by KelJu
Ewwww Cost/Benefit analysis sucks balls. I paid my dues already, you can have that shit MyK.
its actually an options pricing question!
Posted by: maniclion
Why doesn't Home Depot just go with the expanded version and spread the extra 50 mill. across it's other more profitable stores in areas that can't expand any larger, that way they'll get that extra 50 mill. per year and overtime it will make up for the stores that can't expand...
Posted by: MyK
Originally Posted by maniclion
Why doesn't Home Depot just go with the expanded version and spread the extra 50 mill. across it's other more profitable stores in areas that can't expand any larger, that way they'll get that extra 50 mill. per year and overtime it will make up for the stores that can't expand...
A+!!!
your amazing!
Posted by: maniclion
Originally Posted by MyK
A+!!!
your amazing!
"And further more Susan, I wouldn't be the least bit surprised to learn that all four of them habitually smoke marijuana cigarettes.........Reefers"
Originally Posted by durk
