What action do you recommend

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Reference no: EM131967717

Question: Digital Inc. is considering production of a new cell phone. The project will require an investment of $15 million. If the phone is well-received, the project will produce cash flows of $10 million a year for 3 years; but if the market does not like the product, the cash flows will be only $2 million per year. There is a 50% probability of both good and bad market conditions. Digital can delay the project a year while it conducts a test to determine whether demand will be strong or weak. The delay will not affect the project's cost or its cash flows. Digital's WACC is 10%. What action do you recommend?

Reference no: EM131967717

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