What is the value of the option to delay the project

Assignment Help Finance Basics
Reference no: EM13263560

Winters Corp. is considering a new product that would require an investment of $20 million now, at t = 0. If the new product is well received, then the project would produce after-tax cash flows of $10 million at the end of each of the next 3 years (t = 1, 2, 3), but if the market did not like the product, then the cash flows would be only $4 million per year. There is a 50% probability that the market will be good. The firm could delay the project for a year while it conducts a test to determine if demand is likely to be strong or weak, but it would have to incur costs to obtain this timing option. The project's cost and expected annual cash flows would be the same whether the project is delayed or not. The project's WACC is 11.0%. What is the value (in thousands) of the option to delay the project?

a. $1,999
b. $1,311
c. $1,799
d. $1,619
e. $1,457

 

Reference no: EM13263560

Questions Cloud

What is the wavelength of the laser light used : A laser beam of unknown wavelength shines through the two slits and produces a diffraction pattern with dark bands at y1 = 8.9mm, what is the wavelength of the laser light used
What is the maximum contribution to the profit sharing plan : If Donna's net self-employment income is $175,000 and her self-employment taxes t otal $16,000, what is the maximum contribution to the profit sharing plan on her behalf?
What hanging mass would produce this tension : A string 0.5 m long with mass density 0.0003 kg/m and is vibrating 200 cycles per second. What hanging mass would produce this tension
What emf and current are induced in the square coil : A magnetic field is perpendicular to the plane of a single-turn circular coil. The magnitude of the field is changing, so that an emf of 0.66 V, What emf and current are induced in the square coil
What is the value of the option to delay the project : The project's cost and expected annual cash flows would be the same whether the project is delayed or not. The project's WACC is 11.0%. What is the value (in thousands) of the option to delay the project?
Compute the resistance of the wire : The magnetic flux that passes through one turn of a 18-turn coil of wire changes to 5.0 Wb from 14.0 Wb in a time of 0.020 s. What is the resistance of the wire
Ensure you handle missing data as you decided above : Perform a correlational analysis on the following variables: Student Extroversion, Lecture Extroversion, Student Agreeableness, Lecture Agreeableness.
Would you expect the mortagage payment to double : Can you explain why the figure changes? If the interest rate doubles, would you expect the mortagage payment to double?
How long is the bacterium : An interferometer is used to measure the length of a bacterium. The wavelength of the light used is 650 nm. How long is the bacterium

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Find what is the after tax cash flow from sale of this asset

The relevant tax rate is 30 percent. What is the after tax cash flow from the sale of this asset?

  Sirius-xm radio potential merger

What do you think of the potential merger with Sirius and XM radio? Do you think they will be successful? Do you have any monopoly concerns?

  International business comprises currency market

International business comprises currency market and what should be the price of the same disc in Mexico

  Describe tax liability on dividend income

Describe tax liability on dividend income, interest income and interest on loan paid and Excluding the items noted above, Redbird's taxable income is $500,000

  Relevant governance or ethical issues

Describe any relevant governance or ethical issues the M&A activity faced during its formative term? Discuss specifics and how the issue was handled.

  Expanding the existing business by acquiring a competitor

Currently, the riskless interest rate is 8%; the corporate tax rate is 50%; the current price of a share of common stock is $20; an the dividends have been level at $1 per share per year for many years. Recently, company executives have considered ex..

  Explaining fiscal and budgetary challenges

Help me out to explain the fiscal and budgetary challenges faced by higher education institutions?

  Service sector and prepare a revenue budget on an accrual

Service sector using pricing decision and prepare a revenue budget on an accrual basis and including all sources of revenue discussed previously

  Pluralism-state autonomy-elitism

Pluralism, state autonomy, and elitism are three theories of U.S. policy making. Pluralism focuses on power of individuals, state autonomy on bureaucracies, and elitism on effect of elites in society.

  Assessment of declining dollar on us based company

Assess the likely consequences of a declining dollar on Fluor Corporation, the international construction-engineering contractor based in Irvine, California. Most of Fluor's value-added involves project design and management

  How large a sales increase can the company achieve

How large a sales increase can the company achieve without having to raise funds externally - that is, what is its self-supporting growth rate?

  Computation of number of stocks and stock price

Computation of number of stocks and stock price and Assume there is no capital gains tax

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd