What is the npv of the decision to wait to invest

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Problem 1: While Hart's best guess is that the cash flows of White Paper will be $40 million a year, it recognizes that there is a 50% chance that the cash flows will be $50 million a year and a 50% chance that the cash flows will be $30 million a year for 20 subsequent years. One year from now, Hart will find out whether White Paper's cash flows will be $30 or $50 million. Additionally, Hart recognizes that, if it wanted, it could sell White Paper 3 years from now for $280 million.

Question 1: What is Hart's best course of action if they wait, and the $30 million cash flow occurs? What is Hart's best course of action if they wait, and the $50 million cash flow occurs? What is the NPV of the decision to wait to invest, and (potentially) sell White Paper?

Reference no: EM132468543

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