Norris Production Company (NPC)NPC is considering whether to make the investment today or to wait a year to find out about the FDA's decision. If it waits a year, the project's up-front cost at t = 1 will remain at $2,500, the subsequent cash flows will remain at $750 per year if the competitor's product is rejected and $50 per year if the alternative product is approved. However, if NPC decides to wait, the subsequent cash flows will be received only for six years (t = 2 ... 7)This is a risky project, so a WACC of 16.0% is to be used. If NPC chooses to wait a year before proceeding, how much will this increase or decrease the project's expected NPV in today's dollars? (Hint: Find the NPV for "go now" and for "wait," then discount the wait-NPV back for one year since it will occur one year later, and then find the difference between the two NPVs.)
A) $253.86
B) $282.06
C) $313.40
D) $348.22
E) $383.05

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The Answer of Norris Production Company (NPC)NPC is considering whether to make the investment today or to wait a year to find out about the FDA's decision. If it waits a year, the project's up-front cost at t = 1 will remain at $2,500, the subsequent cash flows will remain at $750 per year if the competitor's product is rejected and $50 per year if the alternative product is approved. However, if NPC decides to wait, the subsequent cash flows will be received only for six years (t = 2 ... 7)This is a risky project, so a WACC of 16.0% is to be used. If NPC chooses to wait a year before proceeding, how much will this increase or decrease the project's expected NPV in today's dollars? (Hint: Find the NPV for "go now" and for "wait," then discount the wait-NPV back for one year since it will occur one year later, and then find the difference between the two NPVs.)
A) $253.86
B) $282.06
C) $313.40
D) $348.22
E) $383.05

Norris Production Company (NPC)NPC Is Considering Whether to Make the Investment