For this question, there no A thru E. Just one question with background information. Answer…

For this question, there no A thru E. Just one question with background information. Answer spreadsheet is attached. Just put answer in blank space under tab 12-2. Background information for problem:12-2 CONCEPTUAL ANALYSIS OF REAL OPTIONS Huntsman Chemical is a relatively smallchemical company located in Port Arthur, Texas. The firm’s management is contemplating its first international investment, which involves the construction of a petrochemicalplant in São Paulo, Brazil. The proposed plant will have the capacity to produce 100,000tons of the plastic pellets that are used to manufacture soft drink bottles. In addition, theplant can be converted over to produce the pellets used in the manufacture of opaqueplastic containers such as milk containers.The initial plant will cost $50 million to build, but its capacity can later be doubledat a cost of $30 million, should the economics warrant it. The plant can be financed witha $40 million nonrecourse loan provided by a consortium of banks and guaranteed bythe Export Import Bank. Huntsman’s management is enthusiastic about the project, asits analysts think that the Brazilian economy is likely to grow into the foreseeable future.This growth, in turn, may offer Huntsman Chemical many additional opportunities inthe future as the company becomes better known in the region.Based on a traditional discounted cash flow analysis, Huntsman’s analysts estimatethat the project has a modest NPV of about $5 million. However, when Huntsman’s executive committee members review the proposal, they express concern about the risk of theventure, based primarily on their view that the Brazilian economy is very uncertain.Towardthe close of their deliberations, the company CEO turns to the senior financial analyst andasks him whether he has considered something the CEO has recently read about called“real options†in performing his discounted cash flow estimate of the project’s NPV.Assume the role of the senior analyst and provide your boss with a brief discussionof the various options that may be embedded in this project, and very roughly sketchout how these options can add to the value of the project. *(Hint: No computations arerequired.)*

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