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FIN 486 Week 5 Summary Long Term Financing
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FIN 486 Week 5 Team Assignment Asor Products, Inc

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Jenny Rene, the CFP of Asor Products, Inc. has just completed an
evaluation of a proposed capital expenditure for equipment that would
expand the firm's manufacturing capacity. Using the traditional NPV
methodology, she found the project unacceptable because NPV
traditional = -$1,700 < $0 Before recommending rejection of the
proposed project, she has decided to assess whether there might be
real options embedded in the firm's cash flows. Her evaluation
uncovered three options:
Option 1; Abandonment; The project could be abandoned at the end
of 3 years, resulting in an addition to NPV of $1,200.
Option 2; Expansion; If the project outcomes occurred, an opportunity
to expand the firm's product offerings further would become available
at the end of 4 years. Exercise of this option is estimated to add $
3,000 to the projects NPV.
Option 3: Delay; Certain phases of the proposed project could be
delayed if market and competitive conditions caused the firm's