Expansion project???

When working an expansion project in corp fin…if the options to expand is positive for the high and low scenerios, would you the the probability weight pv on both? or only choose the highest npv.

I believe you would still probability weight it. Even if one has a higher NPV, it does not make it certain so it still needs to be weighted based on how likely it is to occur.

If you worked the EOC on Capital budget.

the first problem on expansion optionality,

has a negative and positive npv.

the negative npv is excluded and the positive npv is probability weighed and present value.

just like an option.



Oh, you did not mention the one (lower) NPV was negative. Makes sense to weight the negative option at zero. Good luck!