Determine the value of the option for the bayer company

Assignment Help Accounting Basics
Reference no: EM131562629

Question -

Determine the value of the option for the Bayer Company by delaying its investment for one year. Consider the value of the option is the difference between traditional present value analysis and real option analysis. The initial investment is for $700,000, but the investment will not be made until next year. The investment is being delayed so that Bayer's management can better determine the market for its product. There are two alternatives for sales in the next year of $1,000,000 or $800,000. Each sales level has an occurrence probability of 50%. The cost of capital for Bayer is 8%. If traditional present value analysis shows that the net present value of the project is $75,000, what is the value of the option (the ability to wait one year before executing or abandoning the project)?

Reference no: EM131562629

Questions Cloud

What dollar amount was spent on fund-raising : After examining these financial statements, answer following questions about the private not-for-profit entities: What dollar amount was spent on fund-raising
Find the inner surface area a of a cylindrical cup : Find the inner surface area A of a cylindrical 250.0-cm3 cup as a function of the radius r of the base. Then if A = 175.0 cm2 solve for r.
Which of the conditions would cause the afn to increase : A company expects sales to increase during the coiming year, Which of the following conditions would cause the AFN to increase?
How could the author expand on the results : Discuss the meaning or implications of the article's contents as well as any flaws you find in the article.What could have made the article better?
Determine the value of the option for the bayer company : Determine the value of the option for the Bayer Company by delaying its investment for one year
Measuring the pressure at a given depth of seawater : In an experiment measuring the pressure (in kPa) at a given depth d (in m) of seawater, the results in the following table were found.
Calculate the past service costs : Calculate the past service costs included in 2012 net pension expense (or revenue) under IAS 19
What would be cost of equity from new stock : What is the company's cost of common equity if all of its equity comes from retained earnings? What would be the cost of equity from new stock?
Compute the product cost per unit for each job : Compute the product cost per Unit for each job, using the original costing system. Suppose Harris Systems adopts the ABC system, Compute the product cost

Reviews

Write a Review

Accounting Basics Questions & Answers

  Fundamental qualitative characteristics

The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability-Relevant information only has predictive value, confirmatory value, or both.

  Paid the cash dividend on preferred stock

Prepare journal entries to record these transactions and post them to T-accounts.

  On january 1 2010 ruby company purchased a piece of

on january 1 2010 ruby company purchased a piece of equipment with a list price of 60000. the following amounts were

  Sales budget for the last six months of 2007

Copper Corporation has the following sales budget for the last six months of 2007

  Wenig inc has some material that originally cost 73500 the

wenig inc. has some material that originally cost 73500. the material has a scrap value of 45600 as is but if reworked

  Entry to record the asset retirement obligation

Calaf estimates it will cost $1,000,000 to dismantle and remove the platform at the end of its useful life in 10 years. (The fair value at January 1, 2015, of the dismantle and removal costs is $450,000.) Prepare the entry to record the asset reti..

  Discuss the fair value of investments in transaction

Record the following transactions on the books of Calvin College, which follows FASB standards, for Calvin's fiscal year, which ends on June 30, 2012.

  Amount that needs to be recorded for estimated bonus

Mason's net income (pre-bonus) is expected to be $3,500,000, and bonus expense is deducted in computing net income. What is the amount that needs to be recorded for estimated bonus liability for 2010?

  Compute the amount of depreciation expense

Compute the amount of depreciation expense that is deductible under MACRS for 2013 and 2014, assuming that the equipment is classified as five year property.

  Long-term debt

Long-term debt that matures within one year and is to be converted into stock should be reported:

  Complete the following table for each account of grocery

Complete the following table for each account by indicating (a) whether it is reported on the Balance Sheet (B/ S) the Balance Sheet (B/S) or Income Statement (I/ S); (b) the dollar amount by which the account increases (+), decreases ( ), or does no..

  Managerial and financial accounting

Write a 700- to 1,050-word paper in which you differentiate between managerial and financial accounting.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd