What is the value of the option to wait

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Reference no: EM131981024

1. 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 $75,000 and will receive cash inflows of $40,000 a year for three years. If you wait one year to start the project, the initial cost will rise to $80,000 and the cash flows will increase to $48,000 a year for three years. What is the value of the option to wait?

$11,560.30

$10,433.80

$9,786.42

$8,852.71

$8,216.70

2. Jonhson & Sons has the following information related to a new project: Initial investment: $1,200,000; Fixed costs: $630,000; Variable costs: $15.20 per unit; Selling price: $31.40 per unit; Discount rate: 16 percent; Project life: 6 years; Tax rate: 34 percent. Fixed assets are depreciated using straight-line depreciation over the project's life. What is the financial break-even point?

62,988

64,311

59,870

67,343

57,206

Reference no: EM131981024

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