6.1: A, B and G
With trial and error, this seems to offer the higher NPV without violating the capital constraint.
6.2: None of the above.
When comparing projects with different risk levels, it is best to discount each project's cashflows at its own discount rate and then compare the NPVs.
6.3: None of the above
PV of cashflows = 2*1.025/ (.0949 - .025) = $29.33 million
Equivalent annual cost = 32.08 * .0949 = $2.78 million
The money you spent acquiring the resource is a sunk cost. The cash flows you will lose in the future by using the asset is an opportunity cost.
6.5: A compromise between the two numbers
Disney has a brand name that is not easily matched. In other words, it is unlikely that Disney will lose the 15% of its market to other competitions entirely but it will lose some.
The synergy benefits accrue completely to the bookstore. If the synergy had been to both, then the cash flows would have to be discounted at different rates.
The value of a real option accrues almost entirely from early exercise. Once the option is exercised, it becomes a regular project.
6.8: less than $37.12 million
The value from the option pricing model is a fair value. You would like to buy it for less. In addition, you cannot trade this option easily and arbitrage is not feasible.
6.9: assets where the technology is volatile, though the likelihood of success
Variance increases the value of options, which is what the patents that emerge from the R&D become.
6.10: It may increase or decrease..
The net effect will be determined by whether the loss in the value caused by the passage of time will be overwhelmed by the potential gain in value from the asset (project) becoming less valuable (as cash flows are less than expected)
6.11: It will increase the return on capital.
When a company buys back stock, the book value will drop more than proportionately (since market value is much higher than book value).