Winters Corp. is considering a new product that would require an after-tax investment of $18 million...

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Winters Corp. is considering a new product that would require an after-tax investment of $18 million now, at t = o. If the new product is well received, then the project would produce after-tax cash flows of $9.0 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 after-tax cash flows would be only $4.0 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 after-tax cost and expected annual after-tax cash flows would be the same whether the project is delayed or not. The project's WACC is 11.0%. What is the value (in thousands) of this investment timing option to delay the project? Do not round intermediate calculations. Winters Corp. is considering a new product that would require an after-tax investment of $18 million now, at t = o. If the new product is well received, then the project would produce after-tax cash flows of $9.0 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 after-tax cash flows would be only $4.0 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 after-tax cost and expected annual after-tax cash flows would be the same whether the project is delayed or not. The project's WACC is 11.0%. What is the value (in thousands) of this investment timing option to delay the project? Do not round intermediate calculations.

Answer rating: 100% (QA)

PVgood 9 million 1 0111 9 million 1 0112 9 million 1 ... View the full answer