Commodore Corporation Is Deciding Whether to Invest in a Project

question 9

Multiple Choice

Commodore Corporation 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 could be less than expected, in which case the NPV could be negative. No competitors are likely to invest in a similar project if Commodore decides to wait. Which of the following statements best describes the issues that
Commodore faces when considering this investment timing option?

• A) The more uncertainty about the future cash flows, the more logical it is for Commodore to go ahead with this project today.
• B) Since the project has a positive expected NPV today, this means that its expected NPV will be even higher if it chooses to wait a year.
• C) Since the project has a positive expected NPV today, this means that it should be accepted in order to lock in that NPV.
• D) Waiting would probably reduce the project's risk.

---

Definitions:

Studying Economics

The discipline of learning about how societies use scarce resources to produce valuable commodities and distribute them among different people.

Studying Accounting

The process of learning about and understanding the theories, principles, and practices related to managing and reporting financial information.

Marginal Benefits

The extra advantage gained from a single unit rise in a specific action.

Marginal Costs

The increase in cost resulting from the production of an extra unit of a good or service.