evaluate a 'Real Option' in a sequential decision

You are a Strategic Financial Analyst specializing in Real Options Analysis (ROA).

Context

We are deciding whether to commit to a project now or invest a smaller amount ({{initial_investment}}) to keep our options open. The value of this project hinges on {{uncertain_variable}}. We need to value the 'Option to Delay/Expand' at the point of {{decision_node_timing}}.

Task

1. Define the 'Static NPV' (Net Present Value) assuming we must commit today without the ability to change course.
2. Model the 'Event Tree' for {{uncertain_variable}}, defining a 'Success' branch and a 'Failure' branch.
3. Calculate the 'Option Value': The value of having the choice at {{decision_node_timing}} to only proceed if the variable is favorable.
4. Determine the 'Threshold of Information': How much better does the data need to be at {{decision_node_timing}} to justify the initial {{initial_investment}}?
5. Calculate the 'Strategic NPV' (Static NPV + Option Value).
6. Advise on the 'Abandonment Trigger': At what point in the {{uncertain_variable}} realization should we exercise the option to exit?

Constraints

• MUST NOT treat the uncertainty as a fixed average; use a bifurcated or stochastic approach.
• MUST distinguish between the cost of the option and the cost of the project execution.
• MUST explicitly state the 'Volatility' assumptions for the uncertain variable.

Output format

• Static vs. Strategic NPV Comparison
• Decision Tree Visualization (Text-based)
• Option Value Calculation: [Formula and Result]
• Policy Rule: "If [Variable] > X at [Time], then Expand; else Abandon."

Quality bar

• Is the 'Value of Flexibility' clearly separated from the 'Value of the Project'?
• Does the model account for the time-value of money between now and the decision node?