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sir,
suppose
NPV of the project is -$2m
and value of option to delay is $3.8msir you said in your lecture that value of the option is the difference between this two.
so it means value of the option it self is = $(3.8-(-2))m= $5.8m and i should consider taking the project
am i right????
i m asking this because in kaplan book the calculation is done like this (-$2m + $3.8m)= $1.8m
I am assuming that you have mistyped your question and the when you say ‘the value of the option to delay is 3.8M’, you actually mean that the value of the project with the option to delay is 3.8M (otherwise the rest of your question is irrelevant).
If so, then you are right about the value of the option.
They should consider taking the project (provided that the option exists) because the NPV is positive.
I don’t know which edition of the Kaplan book you are using (or whether Kaplan have updated it) but it seems their answer is based on an exam question set by the previous examiner, who did it wrongly. The current examiner has accepted that it was wrong and the current edition of your book should have corrected it accordingly.
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