Analyzing a strategy using option analysis
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Reliable Industries is considering the construction of a power plant investment in India. Reliable's analysts calculate that the cost of building the plant is $600 million, and the IRR of the plant is 13%.
The analysts also estimate that given the experience of building the first plant, a second plant can be built for $550 million, and additional plants can be built for about $500 million each.
a. How would you go about evaluating whether or not to build this power plant in India?
b. Are you evaluating a project or a strategy?
c. How does the risk associated with the power plant strategy compare with the risk associated with the individual power plants?
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Solution Summary
The solution analyzes strategy using options. How to evaluate a project or a strategy is examined.
Education
- MBA, Indian Institute of Finance
- Bsc, Madras University
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