Consider building a widget factory that will produce one widget per year forever. The price of a widget now is $100, but next year it will go up or down by 50%, and then remain fixed: t=0 t = 1 t = 2 P1 = $150 + P2 = $150 Po = $100 Pa = $50 - P2 = $50 The cost of the factory is $800, and it only takes a week to build. Is this a good investment? Should we invest now, or wait one year and see whether the price goes up or down? Assume that the WACC is 10%. You will produce the first widget at time=1. invest now. the NPV of the project is $200. wait one year. The NPV of the project will be $386.36