Sheehan Inc

question 33

Multiple Choice

Sheehan Inc.is deciding whether to invest in a project today or to postpone the decision until next year.The project has a positive expected NPV,but its cash flows might turn out to be lower than expected,in which case the NPV could be negative.No competitors are likely to invest in a similar project if the firm decides to wait.Which of the following statements best describes the issues that the firm faces when considering this investment timing option?

• A) The investment timing option would not affect the cash flows and therefore would have no impact on the project's risk.
• B) The more uncertainty about the future cash flows,the more logical it is to go ahead with this project today.
• C) Since the project has a positive expected NPV today,this means that its expected NPV will be even higher if the firm chooses to wait a year.
• D) Since the project has a positive expected NPV today,this means that it should be accepted in order to lock in that NPV.
• E) Waiting would probably reduce the project's risk.

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