Question: 7. [Optional] You are considering a project which will either generate a time 1 value of 230 or 130 with equal probability in one
7. [Optional] You are considering a project which will either generate a time 1 value of 230 or 130 with equal probability in one year. The outcome will become known to you in a year. The project requires an initial outlay today of 140. You alternatively could wait the year out and see which outcome is realized before determining whether you want to spend the 140. However, waiting leaves you with lower market share to the point that you lose 30 in either state - i.e., 200 in the up-state and 100 in the down, one year from now. Should you undertake the project now or wait? Assume a cost of capital of 20% and a risk-free rate of 3%.
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