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The Marcal Corporation is considering a gold mining project would cost $15 million today and generate positive cash flows of $6 million a year at the end of the next 4 years. The project's cost of capital is %12.
Calculate the project's NPV if the company proceeds now.
The company is fairly confident about the cash flow forecast, but expects to have better price information in one year. The company believes the cost would be $18 million in 1 year. It estimates there is a 60% chance CFs will be 9 million for 4 years and a 40% change CFs will be 5 million for 4 years. Should the company proceed with the project now or wait 1 year for better information?
Apart from the calculations above, please discuss 3 qualitive factors that the company should consider when making its decision on accepting the new project?
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