Question: SOS is considering a project that has an initial cost today of $12,500. The project has a two-year life with cash inflows of $7,500 a

SOS is considering a project that has an initial cost today of $12,500. The project has a two-year life with cash inflows of $7,500 a year. Should the firm opt to wait one year to commence this project, the initial cost will increase by 5 percent and the cash inflows will increase to $8,500 a year. What is the value of the option to wait if the applicable discount rate is 14 percent?

answer: $914.62, please shown full working and original formula used

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