Billybob Industries has designed a new bass boat and is considering manufacturing and selling it....
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Billybob Industries has designed a new bass boat and is considering manufacturing and selling it. It might be successful or it might not. If implemented now, the project's NPV is -$20 million. However, if the project is successful over the next 2 years, Billybob can invest $10 million 2 years from now in a new advertising campaign and manufacturing facility and reap the same annual cash flows for 5 years as during the first two years. The NPV of the entire project is $50 million.
Which one of the following statements about this real option is FALSE?
Group of answer choices The embedded option is an investment timing option. The time until expiration for the option is 2 years. The NPV of the project is positive so it should be accepted. The value of the embedded option positive. The exercise price of the option is $10 million.
Billybob Industries has designed a new bass boat and is considering manufacturing and selling it. It might be successful or it might not. If implemented now, the project's NPV is -$20 million. However, if the project is successful over the next 2 years, Billybob can invest $10 million 2 years from now in a new advertising campaign and manufacturing facility and reap the same annual cash flows for 5 years as during the first two years. The NPV of the entire project is $50 million.
Which one of the following statements about this real option is FALSE?
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