om/issues/2017/feb/calculate-internal-rate-of-return-in-excel.html.) 12-50 Real Options—Basic Concepts This problem pertains to the XYZ Company example in the body of the chapter and the associated...

om/issues/2017/feb/calculate-internal-rate-of-return-in-excel.html.) 12-50 Real Options—Basic Concepts This problem pertains to the XYZ Company example in the body of the chapter and the associated discussion of real options. Required 1. Define the term real option. Provide an example of each of the four common types of real options. 2. Define the terms put option and call option. Which of the four common types of real options are similar to put options? Which are similar to call options? 3. Based on the stated probabilities for the individual states of nature (i.e., level of consumer demand): a. What is the expected value each year (1, 2, 3) for the after-tax cash inflows associated with the proposed investment, without considering the investment delay option? As in Exhibit 12.7, express data in millions of dollars ($ millions). Round answers to 2 decimal places.  b. What is the estimated NPV of the proposed investment, without considering the investment delay option? Do not express data in millions of dollars ($ millions) (i.e., use raw numbers). Round your answer to the nearest dollar.  4. We see from Panel B of Exhibit 12.7 that XYZ should invest in the project only if the revealed level of consumer demand was high or medium. Show calculations as to why no investment should be made if the revealed level of demand (in period 1) was low. 5. In Panel B of Exhibit 12.7, show for each of the three scenarios (levels of market demand) the calculation for the present value (at t = 0) of cash outflows (cells H20:H22) (at the risk-free rate), the present value of cash inflows (cells I20:I22) (at the indicated discount rate), and the weighted net present value amounts @ time 0 (cells J20:J22).  6. What is the interpretation of the expected NPV of the project (i.e., a positive $12.951 million)?