You Are Considering a Project That Has Been Assigned a Discount

You are considering a project that has been assigned a discount rate of 14.3 percent. If you start the project today, you will incur an initial cost of $11,400 and will receive cash inflows of $6,800 a year for two years. If you wait one year to start the project, the initial cost will rise to $12,100 and the cash flows will increase to $7,200 a year for two years. What is the value of the option to wait?

A) −$7.63
B) −$9.46
C) −$28.51
D) −$30.49
E) −$33.02

Correct Answer:

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