You Are Considering a Project Which Has Been Assigned a Discount

question 32

Multiple Choice

You are considering a project which has been assigned a discount rate of 14 percent. If you start the project today, you will incur an initial cost of $1,200 and will receive cash inflows of $600 a year for three years. If you wait one year to start the project, the initial cost will rise to $1,250 and the cash flows will increase to $645 a year for three years. What is the value of the option to wait?

• A) $10.16
• B) $14.87
• C) $19.00
• D) $24.08
• E) $27.03

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