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Why they have not included 12 million for Pe , will it be wrong if we do include it?
Why NPV calculation was done if it was not required in question?
1. I don’t know where you are getting 12million from. They are going to develop the game and the option is as to whether they will then actually continue and produce and market the game. So they will spend 7million a year for the next 2 years whatever happens. The option is as to whether to then spend 35 million in 2 years time or not. So Pe is 35 million.
2. The question asks for the impact of delaying the production and marketing. They do not have to delay and they do not need to have the option, so we need to calculate the impact (benefit) of having the option as compared with not having it.