Capital Budgeting Analysis with Real OptionsInvestment Details:Project A:Initial Investment: $4,000,000Annual Cash Inflows: $1,000,000Useful Life: 6...
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Accounting
Capital Budgeting Analysis with Real Options
Investment Details:
- Project A:
- Initial Investment: $4,000,000
- Annual Cash Inflows: $1,000,000
- Useful Life: 6 years
- Option to Expand: $2,000,000
- Additional Cash Inflows from Expansion: $600,000
Requirements:
- Conduct a capital budgeting analysis for Project A, including the option to expand.
- Calculate the net present value (NPV) with and without the expansion option.
- Present the analysis in a detailed table format.
- Discuss the strategic advantages of considering real options in capital budgeting.
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