Suppose that Stone Enterprises is trying to develop a new project but is uncertain about what the market for that product will be one year from now. The new product will require stone to invest $25 million. If the investment is made immediately Stone expects the NPV to be $30 million. Stone expects to earn an additional $3 million in free cash flow this year if the project is undertaken immediately. How much is the option to wait for one year worth? Assume that the project's cost of capital is 30%, that similar projects have annual standard deviations of 30%, and that the risk-free rate is 5%..

Answer rating: 100% (QA)

The option to wait for one year is worth 05 million The option to wait is wor... View the full answer