Real Options and the Investment Decision 63
TABLE 4.7 (Continued)
State of Cash Flow PVIF PV
Economy Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 CF Prob1 Prob2 Prob3 JointProb E PV
40 60 40 0.909 0.826 0.751 116.003 0.20 0.40 0.14 0.01120 1.30
40 60 75 0.909 0.826 0.751 142.299 0.20 0.40 0.40 0.03200 4.55
40 60 200 0.909 0.826 0.751 236.213 0.20 0.40 0.45 0.03600 8.50
40 100 30 0.909 0.826 0.751 141.548 0.20 0.49 0.01 0.00098 0.14
40 100 40 0.909 0.826 0.751 149.061 0.20 0.49 0.14 0.01372 2.05
40 100 75 0.909 0.826 0.751 175.357 0.20 0.49 0.40 0.03920 6.87
40 100 200 0.909 0.826 0.751 269.271 0.20 0.49 0.45 0.04410 11.87
115.23
Cost of 90.00
Project
Expected Net 25.23
Present
Va l u e
TABLE 4.8 Calculation of Expected Cash Value in Year 3
State of CF PVIF PV
Economy Year 3 Year 3 JointProb CF3 ($mm)
Depression 1 0.751 0.00300 $0.002
25 0.751 0.00750 0.141
30 0.751 0.00375 0.085
40 0.751 0.00075 0.023
1 0.751 0.00700 0.005
25 0.751 0.01750 0.329
30 0.751 0.00875 0.197
40 0.751 0.00175 0.053
1 0.751 0.00800 0.006
25 0.751 0.02000 0.376
30 0.751 0.01000 0.225
40 0.751 0.00200 0.060
1 0.751 0.00200 0.002
25 0.751 0.00500 0.094
30 0.751 0.00250 0.056
40 0.751 0.00050 0.015
Recession 3 0.751 0.00450 0.010
20 0.751 0.01350 0.203
30 0.751 0.00900 0.203
40 0.751 0.00300 0.090
3 0.751 0.01800 0.041
20 0.751 0.05400 0.811
30 0.751 0.03600 0.811
40 0.751 0.01200 0.361
(Continued)