Lindley Corp

question 35

Multiple Choice

Lindley Corp.is considering a new product that would require an investment of $10.5 million now,at t = 0.If the new product is well received,then the project would produce after-tax cash flows of $5.3 million at the end of each of the next 3 years (t = 1,2,3) ,but if the market did not like the product,then the cash flows would be only $2.6 million per year.There is a 50% probability that the market will be good.The firm could delay the project for a year while it conducts a test to determine if demand is likely to be strong or weak.The project's cost and expected annual cash flows would be the same whether the project is delayed or not.The project's WACC is 9.2%.What is the value (in thousands) of the project after considering the investment timing option? Do not round intermediate calculations.
?

• A) $1,248
• B) $985
• C) $1576
• D) $1,445
• E) $1,313

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Definitions:

Real Goods

Physical products or commodities that can be touched, seen, and used, contrasting digital or virtual goods.

Aggregate Expenditure

The total spending in an economy, including consumption, investment, government spending, and net exports, at a given time.

Government Purchases

Expenditures by the government sector on goods and services intended to satisfy public consumption and investment demands.

Inventory

The total amount of goods and materials held in stock by a business, warehouse, or store.