Real Options and Sensitivity Analysis Refer to the XYZ Company example in the chapter and the results in Panels A and B of Exhibit 12.7. On the basis of this information, management of the company has...

Real Options and Sensitivity Analysis Refer to the XYZ Company example in the chapter and the results in Panels A and B of Exhibit 12.7. On the basis of this information, management of the company has decided to delay the implementation of the project for 1 year. Those managers are now interested in knowing how sensitive this decision is with respect to the assumptions they’ve made regarding the basic analysis. Therefore, they have asked you to prepare some supplementary analyses regarding Panel B of Exhibit 12.7.

Required 1. Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios are as follows: high (20%), medium (50%), and low (30%)? (Express amounts in millions of dollars; round expected NPV result to 3 decimal places.) 2. Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios are as follows: high (30%), medium (40%), and low (30%)? (Express amounts in millions of dollars; round expected NPV result to 3 decimal places.) 3. Prepare a 5 × 3 table containing the estimated NPV of the decision to delay for each combination of the following: risk-free rate of interest (4%, 5%, 6%) and weighted-average cost of capital (13%, 14%, 15%, 16%, and 17%). For example, one cell in your table would be the estimated NPV of the project if the risk-free rate of interest is 4% and the weighted-average cost of capital is 13%. (Express data inputs in millions of dollars; round expected NPV results in your 5 × 3 table to 2 decimal places.) What does your analysis suggest?