What is value of project after considering investment

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Damon Corp. is considering a new product that would require an investment of $20 million 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. Damon could delay the project for a year while it could conduct a test to determine if demand would be strong or weak. The project's cost and expected annual cash flows are the same whether the project is delayed or not. The project's WACC is 11%. What is the value of the project after considering the investment timing option?

a. $1,353,892
b. $1,489,453
c. $1,545,376
d. $1,767,031
e. $1,998,715

 

Reference no: EM13288269

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