Assume that your company is considering a project that has an up-front cost of $1,500,000 at Year O. The project's subsequent cash flows are uncertain: there is a 75 percent chance that the cash flows will be $500,000 at the end of each of the next seven years (Years 1-7), and a 25 percent chance that the cash flows will be $50,000 at the end of each of the next seven years (Years 1-7). (Hint: this gives an expected cash flow of $387,500 per year and an NPV of $386,512.29 at a discount rate of 10 percent.) If your company waits one year to take on this project, it would know with certainty whether the cash flows will be $500,000 or $50,000 (in which case it might not take on the project). If it waits a year, the project's up-front cost will increase to $1,600,000 at Year 1 and the subsequent cash flows ($500,000 or $50,000) will be received only for six years (Years 2-7). Now assume that all cash flows should be discounted at 10 percent. Determine how much waiting a year will increase or decrease the project's expected NV in today's dollars (that is, at Year 0), relative

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To determine how much waiting a year will increase or decrease the projects expected NPV in todays d... View the full answer