Reliable Industries: 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 build 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 strategy?
c) How does the risk associated with the power plant strategy compare with the risk associated with the individual power plants?
Note: Please use the attached formatted excel worksheet provided.
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Solution Summary
This response evaluates whether a company should build a new power plant and the accompanying risks.
Education
- MBA, Indian Institute of Finance
- Bsc, Madras University
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