What is the value of the option to delay the project

Assignment Help Finance Basics

Reference no: EM13278995

Winters Corp. is considering a new product that would require an investment of $20 million now, at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $10 million at the end of each of the next 3 years (t = 1, 2, 3), but if the market does not like the product, then the cash flows would be only $4 million per year. There is a 50% probability that the market will be good. The firm could delay the project for a year while it conducts a test to determine if demand is likely to be strong or weak, but it would have to incur costs to obtain this timing option. The project's cost and expected annual cash flows would be the same whether the project is delayed or not. The project's WACC is 8.5%. What is the value (in thousands) of the option to delay the project?

Reference no: EM13278995

Questions Cloud

Write a sas program that first creates variables : Write a SAS program that first creates three variables: RF, RM, and R. Assign R the value 0.04, RM the value 0.12 and R the value 0.14. Before proceeding, use the video's PROC PRINT procedure to make sure you have done the DATA step correctly.

Derive the ber-bit error rate of a 8-pam system : derive the BER (Bit Error Rate) of a 8-PAM (Pulse Amplitude Modulation) system in an AWGN (Additive White Gaussian Noise) channel.

What will the price be in 6 years : The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.40 per share on its stock. The dividends are expected to grow at a constant rate of 8 percent per year indefinitely.

Questions needs facts-issue-holding-law-argument-conslusion : This questions needs Facts, Issue, Holding, Law, Argument and Conslusion - Power of the ILO Administrative Tribunal: Armstrong worked for a United Nations specialized agency in Geneva for seven years. As Part of his job, he tracked the civil rights a..

What is the value of the option to delay the project : The project's cost and expected annual cash flows would be the same whether the project is delayed or not. The project's WACC is 8.5%. What is the value (in thousands) of the option to delay the project?

Define cis-dibenzoylethylene is converted to a more stable : cis-dibenzoylethylene is converted to a more stable, new product, ethyl 4-phenyl-4-phenoxy-3-butenoate. What is the structure of the new product

Write function that asks a user its name-age and spouse name : Write a function that asks a user it´s name, age and if the user has a spouse. If the user has a spouse, let the function then ask the spouses age. Then let it write out if the user is older, same age or younger then the spouse, and display the ag..

Explain one cannot be drawn without violating the octet rule : It is possible to draw a valid Lewis structure that follows the octet rule for all of the following except one. Which one cannot be drawn without violating the octet rule.

What is the value of the investment timing option : what is the value (in thousands) of the investment timing option? 1. $1,606 2. $1,740 3. $1,413 4. $1,458 5. $1,487

User Account

All Pages