Hi! A doubt on real options: Say that, in 2 years, I have a real option to expand. If I exercise the option, I have to invest $3M, and will have cash inflows of $1M perpetually. If my cost of capital is 20%, then the expected value of the inflows, AT YEAR 2, is 1/20%=5. But real options require the NPV of the inflows at YEAR 0! My question is: what rate should I discount the value 5 from year 2 to get the present value? Should it be the same as my cost of capital (because cash flows are uncertain)? Should it be the risk-free rate (because I have not committed to the project?)?

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