Understanding NPV & Real Options

 Understanding NPV & Real Options This discussion has 2 parts: Understanding what the net present value (NPV) tells us.The NPV decision rule says to accept the project if the NPV is greater than zero.

 Understanding NPV & Real Options

This discussion has 2 parts:

1. Understanding what the net present value (NPV) tells us.
   • The NPV decision rule says to accept the project if the NPV is greater than zero. You perform a thorough capital budgeting analysis on a project that requires a $1,000,000,000 initial investment and calculate the net present value (NPV) as $1. Following the rule, you tell your boss she should accept the project. She laughs and says “do you think I would really invest $1,000,000,000 for a measly $1 NPV? You should be fired” How would you respond to her? 
2. Real Options
   • Give two examples of “real options” that you have come across in your professional life, or that may come up in projects in a business you wish to start, or that may come up in the projects at a company in which you hope to be employed.

 Instructions:

• Your initial post should be at least 200 words, formatted and cited in current APA style with support from at least 2 academic sources. Your initial post is worth 8 points.