A company is considering investing 2 million on improving its services. This is justified on the grounds that it will allow the business to
extend the range of products offered. In particular the management are interested in selling electronic gadgets and have estimated the following with the
T=1 Cost=5 million PV net receipts = 4 million volatility=40% and risk free rate = 5%.
Answer the following:
Should the retailer proceed with investing in the ordering system based on the gadget business?
Discuss what real options are and how they can be used by a firm?
Please include details.