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Sep 22 Q1.b.ii - NPV

Former userFormer user3y ago

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John MoffatJohn MoffatTutor3y ago#1
The NPV is 1250 + 1563 + 1953 + 3488 + 26375 - 34600 = 29 However all of those flows are stated in $000's, so the NPV of 29 is actually 29,000 :-)
John MoffatJohn MoffatTutor3y ago#2
If the offer from Kero is ignored, then the NPV is 29(as per my previous reply). The offer from Kero is only a possible offer (and is a put option). Using the BSOP model the value of this real option comes out as 4,330. The existence of the option makes B more attractive and so the NPV is the total of the two.
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