es 13- Assignment - Real Options and 4. Investment timing options Companies often need to choose between making an investment now or waiting until the company can gather more relevant information about the potential project. This opportunity to wait before making the decision is called the investment timing option. Consider the case: St. Margaret Beer Co. is considering a three-year project that will require an initial investment of $42,500. If market demand is strong, St. Margaret Beer Co. thinks that the project will generate cash flows of $28,500 per year. However, if market demand is weak, the company believes that the project will generate cash flows of only $1,250 per year. The company thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak. If the company uses a project cost of capital of 11%, what will be the expected net present value (NPV) of this project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.) O-$7,072 -$6,150 O-$6,458 O -$7,380 oct for one year so that analysts can gather more information about whether demand

4. Investment timing options Compandes often need to choose between making an investment now or waiting until the company can gather more relevant information about the potential project. This opportunity to wait before making the decision is called the investment timing option. Consider the case: 5t. Margaret Beer Co. is considering a three-yeer project that wil require an initiol investment of $42,500. If market demand is strong. St. Margaret Beer Co. thinks that the project wal generate cash flows of $28,500 per year. However, if market demand is weak, the company believes that the project wil generate cash flows of only $4,250 per year. The company thinks that there is a so4h chance that demand will be strong and a 50% chance thit demand will be weak. If the company uses a project cost of capital of 11%, what will be the expected net present value (NPV) of this project) (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.). 37,072 56,150 $6,458 47,406