Consider a two-step binomial tree for the PV of the project for the next two years. If the project can be sold/abandoned for a resale value of $95 million in year 2, what is the value of the project?
A project runs for two years and has a present value of $100 million today and an annual volatility of 20%. Assume that the simple annual risk-free rate is 5%. 1. If the project costs $102 million, should you do the project based on the NPV analysis? 2. Consider a two-step binomial tree for the […]