Whether to Invest in a Project Today or to Postpone

question 3

Multiple Choice

Whether to invest in a project today or to postpone the decision until next year is a decision facing the CEO of the Aaron Co.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 Aaron decides to wait.Which of the following statements best describes the issues that Aaron faces when considering this investment timing option?

• A) The more uncertainty about the future cash flows, the more logical it is for Aaron 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.
• E) The investment timing option does not affect the cash flows and will therefore have no impact on the project's risk.

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Definitions:

Buyer

A person or organization that purchases goods or services for personal use or consumption.

Asset

Assets possessed by a corporation that hold financial worth and can yield advantages in the future.

Receiving Report

A document prepared by the receiving department to record and confirm the delivery of goods from a supplier.

Condition of Goods

The physical state or quality of items or products being sold, traded, or transported.