6.3. How are the investment attributes that make it possible to characterize subjectively the value of a real option related to the attractiveness of an industry? For example, when the threat of entry into an industry is high, are real options likely to be more or less valuable? When the level of rivalry in an industry is high, are real options likely to be more or less valuable?

Xinhong company is considering replacing one of its manufacturing machines. the machine has a book value of $39,000 and a remaining useful life of 5 years, at which time its salvage value will be zero. it has a current market value of $49,000. variable manufacturing costs are $33,300 per year for this machine. information on two alternative replacement machines follows. alternative a alternative b cost $ 115,000 $ 117,000 variable manufacturing costs per year 22,900 10,100 1. calculate the total change in net income if alternative a and b is adopted. 2. should xinhong keep or replace its manufacturing machine