- This topic has 1 reply, 2 voices, and was last updated 4 years ago by
.
- Posts
Sir let’s say the NPV of a project if invested in right away is X amount, and if invested in 2 years later is X+20(value of an option to delay), then when we are discussing the reason for an increase in NPV if we wait for 2years before taking up the project, then do we just talk about the 5 variables that go in a B&S formula or that we can also talk about other factors outside this formula? Like reduction in the number of competitors in the industry? growing income of people, or burgeoning demand?
It depends what it is you are being asked to discuss and how many marks are allocated.
The factors you mentioned in your last sentence are dealt with in the formula because they are factors than give rise to the volatility (i.e. the standard deviation). By all means mention them as being possible reasons for the volatility.
- You must be logged in to reply to this topic.