Question: A firm is considering a project that has an initial cost today of $ 1 4 , 0 0 0 . The project has a

A firm is considering a project that has an initial cost today of $14,000. The project has a life of two years with cash inflows of $9,500 per year. If the firm decides to wait two years to commence the project, the initial cost will increase by 3 percent and the cash inflows will increase to $11,000 per year. The applicable discount rate is 12 percent. What is the value of the option to wait?

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