Would your firm be better off starting the project

Reference no: EM133559857

Question: Your firm is considering a project with a discount rate of 12%. If you start the project today, your firm will incur an initial cost of $480 and will receive cash inflows of $320 per year for 3 years with the first cashflow occurring one year from today. If you instead wait one year to start the project, the initial cost one year from today will rise to $520 and the cashflows will increase to $375 a year for the following 3 years with the first positive cashflow occurring two years from today.Would your firm be better off starting the project now or waiting to start the project in one year?

What is the VALUE of the option to wait? Explain your answer clearly, including the NPVs of the two choices.

Reference no: EM133559857

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