You are considering a project that has been assigned a discount rate of 12 percent. If...

You are considering a project that has been assigned a discount rate of 12 percent. If you start the project today, you will incur an initial cost of $280 and will receive cash inflows of $350 a year for 3 years. If you wait 1 year to start the project, the initial cost will rise to $420 and the cash flows will increase to $385 a year for 3 years. What is the value of the option to wait?

O –$20.20

O –$110.01

O –$55.93

O $18.67

O $20.20

Expert Solution

Without waiting

rate	12.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year
(280.00)	0	(280.00)
350.00	1	312.50
350.00	2	279.02
350.00	3	249.12

NPV = 560.64

after waiting for 1 year

rate	12.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year
-	0	-
(420.00)	1	(375.00)
385.00	2	306.92
385.00	3	274.04
385.00	4	244.67

NPV = 450.63

value of option = 450.63 - 560.64 = -110.01

jeff jeffy answered 2 years ago

You are considering a project that has been assigned a discount rate of 8 percent. If...

You are considering a project that has been assigned a discount rate of 8 percent. If you start the project today (t=0), you will incur an initial cost of $980 and will receive cash inflows of $475 a year for three years. If you wait one year to start the project, the initial cost will rise to $1,000 (at t=1) and the cash flows will increase to $515 a year for three years (starting from year t=2). Should you wait...

You are considering a project which has been assigned a discount rate of 9 percent. If...

You are considering a project which has been assigned a discount rate of 9 percent. If you start the project today, you will incur an initial cost of $4,000 and will receive cash inflows of $2,800 a year for 2 years. If you wait one year to start the project, the initial cost will rise to $4,220 and the cash flows will increase to $3,157 a year for 2 years. What is the value of the option to wait? (Do...

Perini Corp is considering a project that has been assigned a discount rate of 14 percent....

Perini Corp is considering a project that has been assigned a discount rate of 14 percent. If the company starts the project today, it will incur an initial cost of $860,000 and will receive cash inflows of $287,000 a year for five years. If the company waits one year to start the project, the initial cost will rise to $988,000 and the cash flows will increase to $341,000 a year for five years. What is the value of the option...

PLEASE SHOW CALCULATOR INPUTS A project has been assigned a discount rate of 12 percent. If...

PLEASE SHOW CALCULATOR INPUTS A project has been assigned a discount rate of 12 percent. If the project starts immediately, it will have an initial cost of $480 and cash inflows of $350 a year for three years. If the start is delayed one year, the initial cost will rise to $520 and the cash flows will increase to $385 a year for three years. What is the value of the option to wait?

Lowell Flooring has assigned a discount rate of 15.2 percent to a new project that has...

Lowell Flooring has assigned a discount rate of 15.2 percent to a new project that has an initial cost of $285,400 and cash flows of $87,400, $98,300, and $131,700 for Years 1 to 3, respectively. What is the net present value of this project?

A project has an NPV of £12,632 when a discount rate of 12% is used and...

A project has an NPV of £12,632 when a discount rate of 12% is used and the same project has an NPV of (£6,935) when a discount rate of 24% is used. The approximate internal rate of return of the project is: Select one: a. 18.5% b. 15.16% c. 20.5% d. 19.75% An investment project costs $10,500 and will generate $4,000 in annual cash flows for five years. What is the exact internal rate of return (IRR)? Select one: a....

Your firm is considering a project with a discount rate of 10%. If you start the...

Your firm is considering a project with a discount rate of 10%. If you start the project today, your firm will incur an initial cost of $480 and will receive cash inflows of $300 per year for 3 years with the first cashflow occurring one year from today. If you instead wait one year to start the project, the initial cost will rise to $520 and the cash flows will increase to $350 a year for the following 3 years...

Consider the following two mutually exclusive project. Relevant discount rate for both projects are 12 percent....

Consider the following two mutually exclusive project. Relevant discount rate for both projects are 12 percent. Year CF Project A (Rp) CF Project B (Rp) 0 (2,000,000) (2,300,000) 1 900,000 550,000 2 800,000 650,000 3 950,000 708,000 4 978,000 1,155,000 5 300,000 2,000,000 a. If you apply the discounted payback criterion, which project will you choose? Why? b. If you apply the IRR criterion, which project will you choose? Why? Hint: Range A: 29-31% ; Range B: 24-26% c. If...

Calculate the project's MIRR, given a discount rate of 9 percent. The MIRR of the project with a discount rate of 9% is...

Emily's Soccer Mania is considering building a new plant. This project would require an initial cash outlay of $8.5 million and would generate annual cash inflows of $3.5 million per year for years one through four. In year five the project will require an investment outlay of $5.5 million. During years 6 through 10 the project will provide cash inflows of $5.5 million per year.Question:Calculate the project's MIRR, given a discount rate of 9 percent. The MIRR of the project...

JJ's is reviewing a project with a required discount rate of 15.2 percent and an initial...

JJ's is reviewing a project with a required discount rate of 15.2 percent and an initial cost of $309,000. The cash inflows are $47,000, $198,000, and $226,000 for Years 2 to 4, respectively. Should the project be accepted based on discounted payback if the required payback period is 2.5 years?

Question