ABC Inc. is considering a project to launch a new product, Power Ranger I. The net present value of this project turns out to be -$ 50 million. However, the project manager is insisting that ABC should launch this project now in 2014 since launching Power Ranger I right now is the only way to launch another product Power Ranger II after 3 years in 2017. He argues that Power Ranger II projects will be a very profitable project and critical to the growth of the company in the future. ABC needs to invest $100 million in 2017 and the expected present value of all future cash flows from Power Ranger II is about $500 million in 2017. The future cash flows of Power Ranger II is very uncertain and it is estimated that the standard deviation of the present value of all future cash flows from Power Ranger II is 0.4 per year. The risk-free interest rate is 6% and the cost of capital for ABC is 20%.Should ABC pursue Power Ranger I project now?Please use Black Scholes Option Pricing Model=

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Sep 13, 2020

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