The projects cost and expected annual cash flows are same

Reference no: EM13477097

Evans Industries is considering a new product that would require an investment of $25 million at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $12.5 million at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $5 million per year. There is a 60% probability that the market will be good. Evans could delay the project for a year while it conducted a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not. The project's WACC is 12%. What is the value of the project after considering the investment timing option?

Reference no: EM13477097

Questions Cloud

The companys capital structure consists of debt and common : claremont company is forecasting eps of 2.00 this year on its 300000 shares of stock outstanding.nbsp its capital

Suppose that shares are repurchased at price equal to stock : mccalister corporation is an all-equity firm with 750000 shares outstanding.nbsp the companys ebit is 3000000 and ebit

Examine the similarities and difference between laws and : q.1. analyze the similarities and difference between laws and ethicsq.2. detail how technological business social and

The firms cost of equity is 11 which is determined by capm : burlington inc. is trying to establish its optimal capital structure.nbsp its current capital structure consists of 30

The projects cost and expected annual cash flows are same : evans industries is considering a new product that would require an investment of 25 million at t 0.nbsp if the new

Select an existing business which aligns their business : select an existing business that aligns their business strategy with employee performance. you may also use your own

A telemarketing company consists of two customer service : a telemarketing company has two customer service teams. team a has 20 agents and team b has 30 agents. 10 agents in

There is a 1 delinquency rate for consumers with credit : there is a 1 delinquency rate for consumers with credit rating scores above 800. if umuc credit union provides large

There are 7 seniors and 3 juniors in the statistics club : there are 7 seniors and 3 juniors in the statistics club and a team of 5 will be randomly selected to attend the joint

User Account

All Pages