Wilson's Antiques Is Considering a Project That Has an Initial

question 42

Multiple Choice

Wilson's Antiques is considering a project that has an initial cost today of $10,000. The project has a two-year life with cash inflows of $6,500 a year. Should Wilson's decide to wait one year to commence this project,the initial cost will increase by 5% and the cash inflows will increase to $7,500 a year. What is the value of the option to wait if the applicable discount rate is 10%?

• A) $1,006.76
• B) $1,235.54
• C) $1,509.28
• D) $1,606.76
• E) $1,735.54

---

Definitions:

Price-Elasticity Coefficient

A measure showing the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.

Midpoint Formula

A method used to calculate the elasticity of demand or supply by dividing the percentage change in quantity demanded or supplied by the percentage change in price, using the average of the initial and final values.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers at various price levels.