Considering the option to delay the decision one year

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Reference no: EM131351764

A potential new project would cost $1000 today. The project would last 2 years. There are 2 possible scenarios for net cash flows in years 1 and 2: 1) $1010 per year, with 50% probability; or 2) $0 per year, with 50% probability. The cost of capital is 8%. If the firm waits 1 year to make a decision about the project, the uncertainty about the worst-case outcome will be resolved (i.e. the firm will know whether the best case or worst case outcome will occur for the next two years). The expected NPV of the project, considering the option to delay the decision one year, is $______.

Rounding and Formatting: Do not enter a dollar sign in your response. Do not round any intermediate work, but round your final answer to 2 decimal places. Example: If your answer is $12.34567, you should enter 12.35 as your response. If your answer is negative, be sure to enter a negative sign preceding the number.

Reference no: EM131351764

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